Reply to: What can I do with money in my business bank account?

[Crossroads]

I'm in a very similar boat. I've got company reserves split across 4 different banks... yes the interest is poor, but my reason for doing it is primarily risk mitigation - no matter how small I'd rather not risk the bank going bust and the company not being covered by the compensation scheme. Whilst the company does earn a small amount of interest on this, it is trifling compared to company income from trading activities, and it pays tax on it too.

Do bigger firms not make sensible low-risk decisions like this, or do they leave all their funds in a single trading account? I don't believe they do.

As you suggest NLUK, going through an MVL is the most tax efficient solution to this problem, but it's not really an option mid-contract (is it?!) so I'm stuck until I can line up being able to take some time off.

[northernladuk]

Can one of the accountants tell me if just opening an interest bearing account to deposit the company's money be seen as an investment?

I am spreading the company's cash into several accounts to keep under the FSA 85k limit... some are paying around 2%.

Is this a bad policy?

Thank you

The returns for doing this are pretty insignificant and the risk of HMRC having a sniff I would say far outweight the risk of the banks going bust again so I think you are making work for yourself that isn't worth doing. I presume these are all business accounts registered in the business name? None of them are personal ones yes?

Could you not pump a bit more in to your pension to keep the numbers down? I presume you have over £190k spare if you are having to open so many accounts. Have you thought about liquidating the company and getting the money out to re-invest personally. Yes you are going to take the hit on tax but you are going to get hit when you finally do shut it down whenever so why not take it now and at least try and grow the money in the mean time?

Are you paying your dividend yearly right at the beginning of the year? You can then invest that and that keeps the amount in the bank down?

[kevpuk]

Given the numbers you are talking about you will probably earn some interest on a normal current/savings account - this is not normally an issue.

On the contrary, a problem might arise if you are seen to be actively managing your cash to generate income for the company.

Agree with this ^^

I move the bulk of my turnover into linked deposit accounts, all with same Bank, to maximise what MyCo's money is doing......a few extra ££ every month (and it is a few ) is all nice. This also doubles as my VAT and CT savings - as a rough guide, I pay all the VAT generated and 20% of all other turnover into one of the 2 deposit accounts and it just sits there until VAT/PAYE/NI/CT etc is due

[Martin at NixonWilliams]

Given the numbers you are talking about you will probably earn some interest on a normal current/savings account - this is not normally an issue.

On the contrary, a problem might arise if you are seen to be actively managing your cash to generate income for the company.

[castoff101]

just cash

Can one of the accountants tell me if just opening an interest bearing account to deposit the company's money be seen as an investment?

I am spreading the company's cash into several accounts to keep under the FSA 85k limit... some are paying around 2%.

Is this a bad policy?

Thank you

[Jessica@WhiteFieldTax]

I would avoid using turnover as a way of determining your investment. I would suggest that you first consider your expenses, taxes and proposed dividends and decide based on any extra cash you might have in the company.

I've experienced instances where clients have gone ahead (before consulting with us!) and invested large sums of money without considering their taxes and the income they need to be paid into their personal account etc.

Tend to agree. Keep it simple. Use your company for trading, keep investments clear of the company and in your personal name. Protects against trading / IR35 risks, and the longer term CGT tends to favour personal, rather than corporate, investing.

I know that sounds "boring" advice, but theres good reason for it.

YMMV

[Submariner]

All, many thanks for all your thoughts.

Martin, I perhaps foolishly used turnover in error. I use a spreadsheet of a well known large accountancy and due to past accounts am aware of my typical CT, PAYE, dividends and expenses and the typical dates on which to pay them. The reason for the initial question was to identify uses for money over and above that required for the above.

[Martin at NixonWilliams]

OK for discussion sake, say I was to invest around 20% of turnover into stocks and shares? I say invest as I assume this would be different to putting in a higher rate account which seem to get nothing anyway.

I would avoid using turnover as a way of determining your investment. I would suggest that you first consider your expenses, taxes and proposed dividends and decide based on any extra cash you might have in the company.

I've experienced instances where clients have gone ahead (before consulting with us!) and invested large sums of money without considering their taxes and the income they need to be paid into their personal account etc.

[jamesbrown]

Aah sorry, I missed that.

There is useful guidance in manual CG64090 on HMRC's site. It looks at whether a company's non-trading assets are 'substantial' compared with its total assets. As a guide, it states that 20% is substantial in this context.

Despite the above, it also implies that each case would be looked at in its own right based on a balance of indicators. There are a number of things outside of your balance sheet that you could look at to determine your trading status.

For what it's worth, my view is that it would be unfair to apply the 20% to a contractor company. The reason being that a typical contractor company requires a very little amount of assets in order to operate compared with, say, a manufacturing company that relies on stocks and machinery etc in order to trade.

I hope this helps.

Martin

Very helpful, thanks.

[jamesbrown]

I got one of those too, I think the 2% rate is only for a year though before it drops down.

It's nice to see a monthly credit that is not invoice money coming in though

I also have one. Excellent while it lasted, but it's coming to the end of the 1 year bonus rate and the standard rate at Barclays is the BOE base rate of 0.5%. The best you can do now seems to be Aldermore (easy access at 1.1% or bonds at 1.8-2%).

[Martin at NixonWilliams]

That's what I meant by the CIC rules. Perhaps you have some advice on the circumstances under which a company's status may be questioned? For example, the proportion of turnover from investments versus the primary trade or the type of investments that risk CIC status.

Aah sorry, I missed that.

There is useful guidance in manual CG64090 on HMRC's site. It looks at whether a company's non-trading assets are 'substantial' compared with its total assets. As a guide, it states that 20% is substantial in this context.

Despite the above, it also implies that each case would be looked at in its own right based on a balance of indicators. There are a number of things outside of your balance sheet that you could look at to determine your trading status.

For what it's worth, my view is that it would be unfair to apply the 20% to a contractor company. The reason being that a typical contractor company requires a very little amount of assets in order to operate compared with, say, a manufacturing company that relies on stocks and machinery etc in order to trade.

I hope this helps.

Martin

[Submariner]

OK for discussion sake, say I was to invest around 20% of turnover into stocks and shares? I say invest as I assume this would be different to putting in a higher rate account which seem to get nothing anyway.

[jamesbrown]

One thing that has not been mentioned is the effect this might have on your trading company status.

That's what I meant by the CIC rules. Perhaps you have some advice on the circumstances under which a company's status may be questioned? For example, the proportion of turnover from investments versus the primary trade or the type of investments that risk CIC status.

[jmo21]

I've looked into this and there are very few low/no risk options for what is essentially (in my case) HMRC's money. I settled for moving a third of the business turnover into an ING (now Barclays) business account which at the time was earning 2% (better than the 0.025 I was earning with HSBC).

This had two distinct advantages;

1) It moved the money out of the business account so I was never tempted to spend it (not that I would ) and
2) It has earned the company a bit of cash (pittance in comparison to my day rate but my business exists to turn a profit and I've turned money the business can't spend into a bit it can)

Shame they've canned the account now - I think options are pretty poor now with 1% being the best deal around

I got one of those too, I think the 2% rate is only for a year though before it drops down.

It's nice to see a monthly credit that is not invoice money coming in though

[ThomserveBAS]

I've looked into this and there are very few low/no risk options for what is essentially (in my case) HMRC's money. I settled for moving a third of the business turnover into an ING (now Barclays) business account which at the time was earning 2% (better than the 0.025 I was earning with HSBC).

This had two distinct advantages;

1) It moved the money out of the business account so I was never tempted to spend it (not that I would ) and
2) It has earned the company a bit of cash (pittance in comparison to my day rate but my business exists to turn a profit and I've turned money the business can't spend into a bit it can)

Shame they've canned the account now - I think options are pretty poor now with 1% being the best deal around