Reply to: Share trading account for Ltd company?

[jamesbrown]

If it's business premises for your trade, no problem at all, but that is pretty unusual (hence my assumption).

[willendure]

As I said, the income paints a different picture, so you're probably fine, overall, on that point, but I wouldn't personally risk 50%+ of company assets in investments (but you've already done that). That said, I also wouldn't mix property investing with an IT business, rather split them into different companies. Hey ho.

Property: 120K
Mortgage: -40K

This isn't a property investment, its the business premises. Old fashioned, I know, but the company has an actual office where I go to work instead of getting nothing done at home!

I am curious though - what is the problem with mixing property with IT? Just that the business might be seen as CIHC because of the property investment? That is, it should be either 1 OR 2 in the quote below, not a combinations of 1 AND 2?


"
The legislation determines broadly that any such close company will, in turn, be a CIHC unless it falls inside at least one of several exclusions from CIHC status. Fortunately, those exclusions are widely cast in terms of practical application, including where the company exists wholly or mainly for the purpose of:

1. carrying on one or more trades on a commercial basis; or
2. carrying on a commercial letting activity.

"

[jamesbrown]

I see, that matters too?

Yeah, see the link I provided in relation to "wholly or mainly", specifically:

• What are the assets (nature and amount) and to what uses have they been put?

As I said, the income paints a different picture, so you're probably fine, overall, on that point, but I wouldn't personally risk 50%+ of company assets in investments (but you've already done that). That said, I also wouldn't mix property investing with an IT business, rather split them into different companies. Hey ho.

[malvolio]

I see, that matters too? The income from investing will be much smaller than from trade, lets say ~5% of 50K = 2500, versus 110K turnover from IT consulting.

When you say company assets, is that just cash? or all assets. Approx balance sheet at the moment is:

Cash: 50K
Property: 120K
Mortgage: -40K

Balance: 130K

You think its a good idea to keep any investments safely under 50% of 130K? or under 50% of the cash 50K?

I will run it past my accountant - but appreciate your thoughts anyway. Yes, a risker investment would be better to do with a sum taken out into an ISA.

A savings account at nearly %5 has its appeal, but also I don't think quite cuts it as an inflation or recession hedge. A mix of interest earning cash, bonds and metals would be a better position to be in.

No doubt you've done the sums, but personal cash interest in an ISA is tax free as opposed to income from investments.

[willendure]

Personally, I would not invest 100% of company assets (or even 50%)

I see, that matters too? The income from investing will be much smaller than from trade, lets say ~5% of 50K = 2500, versus 110K turnover from IT consulting.

When you say company assets, is that just cash? or all assets. Approx balance sheet at the moment is:

Cash: 50K
Property: 120K
Mortgage: -40K

Balance: 130K

You think its a good idea to keep any investments safely under 50% of 130K? or under 50% of the cash 50K?

I will run it past my accountant - but appreciate your thoughts anyway. Yes, a risker investment would be better to do with a sum taken out into an ISA.

A savings account at nearly %5 has its appeal, but also I don't think quite cuts it as an inflation or recession hedge. A mix of interest earning cash, bonds and metals would be a better position to be in.

[jamesbrown]

No problem. If I understood you correctly, you essentially have a warchest of £50k and want to invest all of that warchest in low-risk investments through a corporate trading account, right?

Personally, I would not invest 100% of company assets (or even 50%), even though you are trading and the income from these investments would be small compared to your trading income. In principle, the relative significance of the trading vs. investment income would probably be definitive here, but I personally take a conservative view on tax issues and the way your assets are being used would be a factor in whether your company is a CIHC, as clarified in HMRC's internal manual:

https://www.gov.uk/hmrc-internal-man...anual/ctm60730

When 50% or 100% of company assets are invested and not available for supporting and growing the trade, I think it becomes harder to justify the company as being "wholly or mainly" engaged in a trade.

Also, for such small sums, it hardly seems worth the risk to me. You should be able to get a short-dated savings account (notice account or even easy access) that pays something in the 3.75-5% range. You're unlikely to do much better than this with low-risk investments. For example, the TG24 (22/04/2024) Gilt is currently paying around 5%.

I would stick it in a regular savings account and treat it as intended, i.e., your warchest. If you want to make riskier investments, I would withdraw the cash and use your annual CGT allowance or invest in an ISA, exactly as you say. YMMV.

[willendure]

You will presumably want to extract that profit at some point, regardless of how it originated, so a fair comparison would require tax on dividends received regardless of origin (of the profit). If you want to MVL in future and receive a capital distribution, it is obviously important that your company has not been a CIHC. Depending of the level of capital gain, there may or may not be CGT to pay on gains made personally (although the CGT annual allowance has been slashed).

Thanks for your thoughts on CGT, MVL and the dividend tax I would incurr when taking the money out in the future. Made me think I need to run through a bit better why I want to do this, because a more sensible alternative might be to take it out and put it in an ISA (no allowance left this year, but next year and the year after), or just take it out now and invest it using a personal trading account. As I say, already up to the higher tax rate threshold this year, maybe some "headroom" to get some out without incurring 40% next year.

I have a safety net saved in the company accounts. This is roughly £50K and is the amount of money I need to survive without changing my lifestyle or expenditures at all for 1 year. It covers my mortgage and bills, some savings that go to my kids and discretionary spending, the amount the company will pay into my SIPP and the companies running costs which include a small mortgage on an office. I generally want to keep this money in the company, I already paid corp tax on it as its retained profits. If I need to use it, the part that will come out to me will do so below the higher tax rate, so the amount of tax I will pay on it will be really small, maybe as little as £2k. I am also working towards saving up a second stash of £50K, because the idea of taking a year out to do some fun an interesting stuff is really quite appealing! Maybe it will actually be 2 sabaticals of 6 months each, so the company will still be trading as usual in those years. Company turnover was about £110K last year.

Lower risk investments in short gov bonds or precious metals, should help preserve the value of my stash in the face of inflation. When the s**t hits the fan and central banks pull back rates, both are likely to see a nice bump in value too. Heck, I might even throw caution to the wind and place a small chunk of it in something riskier.

So there you have it:

Turnover from IT consulting: £110K
Investments (yielding 4.5% on govt bonds): £50K

Might eventually double to: £100K and turnover might drop to £55K some years.


What do you think on those amounts versus the risk of being classes as a CICH?

[TheGreenBastard]

You'll notice that one involves a sweary meltdown and one refers to your unintelligible posts. HTH.

Where did I sear, now you're just imagining things, talk about unhinged. The incessant need for the last word too, troubling.

[jamesbrown]

Hmm indeed.

You'll notice that one involves a sweary meltdown and one refers to your unintelligible posts. HTH.

[TheGreenBastard]

Professional forum. The only thing missing is your usual "slave owner" bile.

If you had a point, it was lost in your terrible English. You’re probably very agitated, but try to relax .

Hmm indeed.

[jamesbrown]

Nah, it's pretty damn weird to project people's emotional state, probably a little bit of narcissism mixed in with it, to assume I would care enough about what you say for it to effect me.

Most of what you say assumes the OP will turn into Gordon Gekko, most of his income will come from investments etc. The normative case is that a few 10s of K are put aside, as usual you present the extremes as the norm. The OP has explicitly implied this wouldn't be the case, and I took that at face value. Now your classic smart arse crap predicates on his investments becoming wildly successful after using all company proceeds. After becoming a great investor I doubt they will care about CIHC.

Case law like Herts Photographic Bureau Ltd v CRC [2010] UKFTT 629 (TC) is interesting too.

Professional forum. The only thing missing is your usual "slave owner" bile.

[courtg9000]

One of MyCo's had a Share dealing account in the past.
It was useful and having one is not a total indicator of being a CIHC. Watch the trading level though.
There were times when owning some stock was attractive to the business and as I modelled MyCo on a "private trading office" with multiple income streams I never had this issue. To be fair the trading level was very low. Not even 20 trades a year, many of these had a business reason as opposed to an "investment reason".

[TheGreenBastard]

I think the weird look is all yours.

If you're in agreement that both the legislation and case law remain vague, I've made my point that you cannot clearly identify where the line is crossed between a regular close company and a CIHC. It will depend on the facts. That is "constructive ambiguity" or opportunity from HMRC's POV.

Bottom line, if you're investing company cash, don't invest too much (as a fraction of net assets), don't make too much profit (as a fraction of net profit), don't engage in any weird/artificial arrangements, such as letting properties to associated individuals/companies, and don't stop doing your main trade for any significant period, certainly not a full accounting period. That's quite a lot of "don't", hence the typically conservative advice you will see here and elsewhere. If you're in any doubt that HMRC will pursue, until the bitter end, arrangements that are seemingly completely vanilla, look at HMRC's loss to Kaye Adams w/r to IR35 (reported yesterday) on their fourth attempt at FTTT.

Nah, it's pretty damn weird to project people's emotional state, probably a little bit of narcissism mixed in with it, to assume I would care enough about what you say for it to effect me.

Most of what you say assumes the OP will turn into Gordon Gekko, most of his income will come from investments etc. The normative case is that a few 10s of K are put aside, as usual you present the extremes as the norm. The OP has explicitly implied this wouldn't be the case, and I took that at face value. Now your classic smart arse crap predicates on his investments becoming wildly successful after using all company proceeds. After becoming a great investor I doubt they will care about CIHC.

Case law like Herts Photographic Bureau Ltd v CRC [2010] UKFTT 629 (TC) is interesting too.

[jamesbrown]

Perhaps project less on other people's emotions, it's a weird look, also consider I may be a non-native speaker? Common law is vague in part due to its dependence on case law.

I think the weird look is all yours.

If you're in agreement that both the legislation and case law remain vague, I've made my point that you cannot clearly identify where the line is crossed between a regular close company and a CIHC. It will depend on the facts. That is "constructive ambiguity" or opportunity from HMRC's POV.

Bottom line, if you're investing company cash, don't invest too much (as a fraction of net assets), don't make too much profit (as a fraction of net profit), don't engage in any weird/artificial arrangements, such as letting properties to associated individuals/companies, and don't stop doing your main trade for any significant period, certainly not a full accounting period. That's quite a lot of "don't", hence the typically conservative advice you will see here and elsewhere. If you're in any doubt that HMRC will pursue, until the bitter end, arrangements that are seemingly completely vanilla, look at HMRC's loss to Kaye Adams w/r to IR35 (reported yesterday) on their fourth attempt at FTTT.

[TheGreenBastard]

Hasn't something also changed very recently making a contractor with a LTD and a second for SPV very unattractive? I thought I was an article or thread on it. Something to do with close companies or combined CT?

"Very unattractive" is would be false, depending on the scale of your business(es). Single property SPV? Don't bother the new rules will hurt.

The tax changes are a drop in the ocean in regards to turning a profit via BTL. BTL in your personal name was killed with expenses changes, now Ltd. company BTL is dead (to new entrants) due to a mixture of interest rate increases, and potentially increase in rights to tenants which BTL investors would argue go too far. The interest rate increases mean the cost of debt has destroyed profit margins, even if you have a LTV that results in headline profit margin looking OK, it will likely be on par or only similar to what you can get in a high interest savings account (of course without all the risk). Also consider capital appreciation is no longer guaranteed, prices might be down, but on the balance of things house prices still are not rational in relation to cost of debt. With current market conditions I can't see asset appreciation being depended upon.

I have real concerns for the rental market in this country, especially for the tenants, availability is drying up (landlords selling up) and there's no incentive to invest. Rental costs are already sky high.