Reply to: Company Savings Account

[Petrolhead]

The question about where to put spare company cash comes up all the time, and always with the same answers, 1% here, 1.2% there. Boring!

This is what I did - and yes after checking with my accountant at SJD who said lots of clients do it.

I opened a 'corporate' Vantage Fund & Share account with Hargreaves Lansdown. Before I go on - this is not a plug - I'm not wishing for a free HL rucksack, just sharing my experience.

So, 'corporate' is the key point here. This means the account is solely in my Ltd co name. This is on the paperwork, the website when I login and even my userid is the company name. This classes it as a company asset, separate from my private assets, even though of course it's me logging on making the investments. And crucially ONLY return funds back to the company bank account. Funds must never stray out to your personal account. Obvious.

So ... now we have a nice convenient place to shift some of that dead cash we all suffer so badly with!

As you've probably read in the papers before - all you have to do now is hire a chimp and ask him to place a dart in the FT and then buy those shares with your company funds. Haha.

Honestly - it's not that hard. Basic account management and average risk taking has seen my company buy eg VOD shares, LSE shares etc etc and receive dividends sometimes too.

When you make 5% on some shares in a fortnight with company money - you can't help chuckling at those searching for the best 'savings account'. Good luck with that.

Just before my co year end I transfer all funds back to the company main account. My accountant includes profit with other income and the correct taxes are paid. Simple.

It's a beautiful feeling each time your company makes a profit equivalent to your day rate without you being on site.

Yes you can lose. But be sensible. Spread risk.

Oh and people always say - oh no! your company will be deemed an investment company! Er - not likely. As long as you're making, I don't know, 50k, 80k, 100k whatever from normal contracting, your 2,3,4,5,10(if you're lucky/good at it) thousand profit is never going to eclipse that to justify anyone saying its your company's main income. I'd be happy with a couple of thousand profit a year, hey it pays the accountant bill

So in summary - more directors need to know investing is a viable, easy to setup thing to do with company funds.

Still looking for that 1% a year savings account...?

[northernladuk]

<pedant>Not yet they haven't - start of the new tax year</pedant>

Did I say I missed you?

[TheFaQQer]

We don't know your exact figures so just make sure you have spoken to your accountant and used all other avenues up. For example, directors loans have gone up to £10k...

<pedant>Not yet they haven't - start of the new tax year</pedant>

[TheFaQQer]

Actually I fell into it, earnings are considerably more, its just accessing it is way more limited than I thought!

PAYE, dividend, ER.

There's your ways to get money out of the company into your account.

Limitations...

PAYE - none
Dividend - you can't pay out more than you have in profit
ER - you need to close the company

There aren't many limitations that I can see.

(This has deviated somewhat from the original question, though, which pertains to company savings accounts, from which there are plenty to choose)

[northernladuk]

Ultimately it only re-enforces the necessity for an account that pays a reasonable interest rate, which is where I started.

In the short term I will go for the Aldermore flexible account at 1.1% and maybe consider a 12 month investment account for next year.

I must admit it is an interesting thread and will be looking in to this account as well as Santander have just informed me they are halving their previous rate of 1% for their business saver.

We don't know your exact figures so just make sure you have spoken to your accountant and used all other avenues up. For example, directors loans have gone up to £10k I believe so you could loan it to yourself for up to 21 months before you have to pay it back and put that somewhere useful. You could, and I am not condoning this because I personally know people that have got in to real trouble here, divi yourself the full years dividends in the first month of your year including CT savings if you don't have enough. If you screw up and can't pay your CT you will be in a world of crap so be very careful with that one. Also with the directors loan if you mess something up you won't be able to use it up to carry something over and may end up paying more tax. As I say, it may be possible but tread very carefully. Just make sure you r accountant has given you all the options and advice.

EDIT : Thinking about it forget the advice about withdrawing CT money. It's not worth it.

[Bones]

Someone is coming down to earth with a crashing bump I see

Ha ha ha I think you might be right!

The tax break is only a soft stop. It's up to you if you want to take it all or save but compare this to the amount of tax a permie would pay. 40% at 40k or seomething isn't it so you are quids in. How many permies get to earn 30k and not pay tax on it.

I wasnt trying to say there was no benefits, just establishing the boundaries.

If you do pull the money out in the future you can use can pull some of it out at 10% and the rest still at a rate considerably less than that of a permie with the same amount.

I am guessing this is still dependent on where you are on your tax allowance

I think you need to take your rose tinted specs and look at this with a bit more clarity. You obviously started contract thinking of nothing more than the rate and now learning it isn't as clear as you thought. Either way what you earn is considerably more (and taxed less) than a permie so what's your problem?

Actually I fell into it, earnings are considerably more, its just accessing it is way more limited than I thought!

After so many post and you still don't get it shows you have a problem somewhere and need to get over it. Doesn't the fact that you are the only one struggling with, and not happy with the situation tell you something?

Is that the sound of laces being tightened on your steel toe capped kicking boots

My 'problem' was only establishing the facts.

Ultimately it only re-enforces the necessity for an account that pays a reasonable interest rate, which is where I started.

In the short term I will go for the Aldermore flexible account at 1.1% and maybe consider a 12 month investment account for next year.

[northernladuk]

I see what you are saying but in reality unless you are prepared to pay the extra tax (25%?) you are commited to earning no more that your £32ish plus personal allowance per year. The only advantage is that you could take a year off and still potentially pay youself £3100 a month. This is handy if you have several months between contracts (as I do) but holding a year or twos money means it is likely to sit there indefinately (unless you pay the tax), you may as well not have it for all the good its doing you!
So I dont see that your in any better position than a permi on half (or less) than your apparent contract wage!

Someone is coming down to earth with a crashing bump I see

The tax break is only a soft stop. It's up to you if you want to take it all or save but compare this to the amount of tax a permie would pay. 40% at 40k or seomething isn't it so you are quids in. How many permies get to earn 30k and not pay tax on it.

If you do pull the money out in the future you can use can pull some of it out at 10% and the rest still at a rate considerably less than that of a permie with the same amount.

I think you need to take your rose tinted specs and look at this with a bit more clarity. You obviously started contract thinking of nothing more than the rate and now learning it isn't as clear as you thought. Either way what you earn is considerably more (and taxed less) than a permie so what's your problem?

After so many post and you still don't get it shows you have a problem somewhere and need to get over it. Doesn't the fact that you are the only one struggling with, and not happy with the situation tell you something?

Speak to your accountant and ask him to do a like for like comparison for you.

[TheFaQQer]

I see what you are saying but in reality unless you are prepared to pay the extra tax (25%?) you are commited to earning no more that your £32ish plus personal allowance per year. The only advantage is that you could take a year off and still potentially pay youself £3100 a month. This is handy if you have several months between contracts (as I do) but holding a year or twos money means it is likely to sit there indefinately (unless you pay the tax), you may as well not have it for all the good its doing you!
So I dont see that your in any better position than a permi on half (or less) than your apparent contract wage!

Few permies have the facility for their employer to whack £40k a year into a pension plan for them.

Few employees have the facility to take long breaks off work and still get the same pay.

Few employees have the facility to effectively defer their income and then take it at a lower rate via ER in the future.

[Bones]

Except a permit doesn't have the opportunity to earn 2-4x that amount and leave it for a rainy day. You need to look at the bigger picture. One good years turnover could potentially give you a personal income of £3100 a month for 2-3 years! That's just one year. Three years down the line, you could have a healthy war chest, decent pension contributions under your belt and enough left over to take an extra lump sum (which you'd pay higher rate tax on) if you need it.

I see what you are saying but in reality unless you are prepared to pay the extra tax (25%?) you are commited to earning no more that your £32ish plus personal allowance per year. The only advantage is that you could take a year off and still potentially pay youself £3100 a month. This is handy if you have several months between contracts (as I do) but holding a year or twos money means it is likely to sit there indefinately (unless you pay the tax), you may as well not have it for all the good its doing you!
So I dont see that your in any better position than a permi on half (or less) than your apparent contract wage!

[TheCyclingProgrammer]

But if the max you are going to pay yourself in a year is 32k plus basic tax allowance you may as well go permanent and save all the hassle? ok you wouldnt get the same potential time off!

Except a permit doesn't have the opportunity to earn 2-4x that amount and leave it for a rainy day. You need to look at the bigger picture. One good years turnover could potentially give you a personal income of £3100 a month for 2-3 years! That's just one year. Three years down the line, you could have a healthy war chest, decent pension contributions under your belt and enough left over to take an extra lump sum (which you'd pay higher rate tax on) if you need it.

Or, if you decide to call it a day and return to a prime job, you can shut the company down and take a capital distribution at a much lower tax rate (10% CGT after using entrepeneurs relief).

Of course, with a 12 month war chest under your belt your free to continue taking any excess profit out if the company immediately if you want to, but there's no point in doing it if you don't need the money there and then.

Likewise, if £3100 a month isn't enough to live on then you can take more, you'll just have to accept you're going to have to pay more tax in the long run.

[Bones]

YourCo can earn as much as it wants. It will pay 20% CT regardless.

It's £32010 plus your personal allowance although most of that will be used up by your basic salary.

All told, you should be able to withdraw about £3100 a month net without incurring any income tax.

But if the max you are going to pay yourself in a year is 32k plus basic tax allowance you may as well go permanent and save all the hassle? ok you wouldnt get the same potential time off!

[TheCyclingProgrammer]

OK I am now googling "dividends up to the higher rate threshold"

It would seem that you need an extended period of no work in a tax year to avoid higher rate tax!?

So I cant take more than £32,010 in a tax year without attracting more tax.....I can see a problem here!

YourCo can earn as much as it wants. It will pay 20% CT regardless.

It's £32010 plus your personal allowance although most of that will be used up by your basic salary.

All told, you should be able to withdraw about £3100 a month net without incurring any income tax.

Not at all, I dont have a lump sum, yet. It will be building up over this tax year so I cant invest what hasnt been earned yet. What I wanted was a savings account that I can keep adding money to over the year and get a monthly interest on the balance.

I was under the impression you already had significant retained profit. If not your first priority, as NLUK says, would be to build up your warchest.

[northernladuk]

OK I am now googling "dividends up to the higher rate threshold"

It would seem that you need an extended period of no work in a tax year to avoid higher rate tax!?

Eh? No you don't you just don't take it all out and build a warchest up. Enough for 6 - 12 months is ideal. If you have an accident or just can't find work for a long period you just continue to divi as normal.

IMO Your warchest should be number 1 priority. We have plenty of posters on here that have had extended periods off and have got very twitchy about where the next money is coming from which can't be a nice place to be. Live a fairly basic life until you have your warchest behind you and then you can think about spending more on women and booze.

[Bones]

Of course there is. The advantage is, you don't have to pay any more tax than you need to buy taking it out of the company. If you can live on the maximum income up to the higher rate, then there's little point withdrawing more and paying higher rate tax (effectively 25%) unless you need it for a specific reason.

The whole point of leaving it in the business is so you can continue to draw your regular dividends up to the higher rate threshold when you've got no work.

That doesn't mean you need years worth of profit built up...retain what you need to be comfortable and maybe put the rest in a pension.

OK I am now googling "dividends up to the higher rate threshold"

It would seem that you need an extended period of no work in a tax year to avoid higher rate tax!?

Yes of course you're going to pay CT but why add a 25% income tax bill on top too?

So I cant take more than £32,010 in a tax year without attracting more tax.....I can see a problem here!

I thought that's exactly what you wanted to do? Put away a lump sum in a business savings account for as long as possible.

Not at all, I dont have a lump sum, yet. It will be building up over this tax year so I cant invest what hasnt been earned yet. What I wanted was a savings account that I can keep adding money to over the year and get a monthly interest on the balance.

[TheCyclingProgrammer]

I dont quite understand why you would want the have a war chest retained within the company, is there some tax advantage?

Of course there is. The advantage is, you don't have to pay any more tax than you need to buy taking it out of the company. If you can live on the maximum income up to the higher rate, then there's little point withdrawing more and paying higher rate tax (effectively 25%) unless you need it for a specific reason.

The whole point of leaving it in the business is so you can continue to draw your regular dividends up to the higher rate threshold when you've got no work.

That doesn't mean you need years worth of profit built up...retain what you need to be comfortable and maybe put the rest in a pension.

I cant really see any point in retaining money in the business (other than tax commitments) gaining no interest when you could take it out and get maybe 3%. Its going to cost you the CT anyway??

Yes of course you're going to pay CT but why add a 25% income tax bill on top too?

As for estimating your end of year CT and then locking it away in advance sounds like you are just tying up money into a low interest business account?

I thought that's exactly what you wanted to do? Put away a lump sum in a business savings account for as long as possible.