Taxable profit and Corporation Tax

[Maslins]

With very obscure and limited exceptions, investments aren't tax deductible.

So you pay tax on £70k from your example.

However generally I wouldn't recommend any investing through a company; suffer the Higher Rate tax upfront, and invest personally. The long term CGT regime is better and your money is protected from trading risks.

This.

Although if you're happy for the investments to be held within a pension wrapper (meaning you can't access them until retirement) then that could be a tax efficient option, and would in effect lead to you just being taxed on the £50k (with the £20k being a pension contribution).

[Jessica@WhiteFieldTax]

Exactly.

There is the (unlikely) risk of becoming a close investment company which increases CT rates and there is no CGT relief on the corporate case.

But........

There is a scenario where removing the funds into personal hands causes higher rate tax to be paid. If it is a long term plan, and the individual expects not to be a higher rate taxpayer later then it is possible that investing in the company name may just be worthwhile - due to the lower taxation on output. [It would be very unusual, but could just happen].

I was more thinking of effective personal CGT rates being lower than corporate ones, plus the annual exception but, yes, those points are quite valid as well.

There's no substitute for advice and doing the sums with assumptions about future.

[taxguru]

Thanks everyone for your responses. It seems there is an opinion difference whether it is a 50000 or 70000. I will check with my accountant.

I see myself moving abroad after 8 to 10 years and with minimal taxable income in UK when i can cash in my investment (and hopefully profit ) and still be on lower tax band (if the rules remain the same).Just trying too formulate my long term plan.

Regards

There is no need for any confusion; it's straightforward: your company pays tax on the taxable profit which is worked out after deducting all allowable expenses incurred for the purposes of the trade. In your example you pay tax on £70k. Your company could invest its taxed profits wherever it wishes to.

[itcontracter]

Thanks

Thanks everyone for your responses. It seems there is an opinion difference whether it is a 50000 or 70000. I will check with my accountant.

I see myself moving abroad after 8 to 10 years and with minimal taxable income in UK when i can cash in my investment (and hopefully profit ) and still be on lower tax band (if the rules remain the same).Just trying too formulate my long term plan.

Regards

[malvolio]

With very obscure and limited exceptions, investments aren't tax deductible.

So you pay tax on £70k from your example.

Oops, quite correct. I forgot that minor detail. Sorry....

[ASB]

With very obscure and limited exceptions, investments aren't tax deductible.

So you pay tax on £70k from your example.

However generally I wouldn't recommend any investing through a company; suffer the Higher Rate tax upfront, and invest personally. The long term CGT regime is better and your money is protected from trading risks.

Exactly.

There is the (unlikely) risk of becoming a close investment company which increases CT rates and there is no CGT relief on the corporate case.

But........

There is a scenario where removing the funds into personal hands causes higher rate tax to be paid. If it is a long term plan, and the individual expects not to be a higher rate taxpayer later then it is possible that investing in the company name may just be worthwhile - due to the lower taxation on output. [It would be very unusual, but could just happen].

[Jessica@WhiteFieldTax]

With very obscure and limited exceptions, investments aren't tax deductible.

So you pay tax on £70k from your example.

However generally I wouldn't recommend any investing through a company; suffer the Higher Rate tax upfront, and invest personally. The long term CGT regime is better and your money is protected from trading risks.

[northernladuk]

Do some research as it isn't always always the most tax efficient way to put it through the company. Particularly property. Plenty of the threads about property on here if you search.
Your accountant should be your first port of call though.

[cojak]

Welcome!

You'll find a lot of answers to your questions within the CUK website.

On the right you'll find CUK Navigation. >>>>>>>>>

Look down and you'll come to the First Timers section. Have a read through there.

Basic expenses questions answered here: Contractor Expenses - How to claim Travel and other expenses via Limited Company or Umbrella

Then pay particular attention to IR35.

If you go into the Accounting/Legal forum you'll discover the thread Basic advice when running your own contractor business.

Guide to Contracts also has some good articles.

And finally - accountant recommendations - Ta-da!

Happy reading!

[malvolio]

Hello,

I am an IT consultant. I am considering to invest surplus business cash on shares, property etc through my limited company. Question is whether I should pay corporation tax on the amount invested or the amount invested can be negated from profit for the year while calculating Corporation Tax.

Total Income :- 80000
Expenses :- 10000
Profit for the year :- 70000
Amount to be invested : - 20000

Should I pay corporation tax on 70000 or 50000 this year? Or can I delay corporation tax on the amount 20000 till the Tax year when I receive the investment amount back with profit or loss and declare dividend.

Regards

What does you accountant advise? Because if you don't have one, it might be a good idea go get one...

CT is paid on annual gross profits, which (as I'm sure you know) is basically gross income less all business expenses. Dividends (as I'm also sure you are know) are paid out of net annual profits.

So, what is the answer to your question?

[EDIT] OK, time's up... it's £5000 - the investment is basically company expenditure so reduces the gross profits. CT is chargeable year on year, so you have to look at the company's figures at the year end. If your investment returns a profit, that's just more company gross profit. If you make a loss, then that's offset against CT. It is all calculated over the trading year, every year.

However, be careful. Investment income is taxed differently to trading income. So get an expert to advise you properly. Getting it wrong could prove expensive.

[itcontracter]

Hello,

I am an IT consultant. I am considering to invest surplus business cash on shares, property etc through my limited company. Question is whether I should pay corporation tax on the amount invested or the amount invested can be negated from profit for the year while calculating Corporation Tax.

Total Income :- 80000
Expenses :- 10000
Profit for the year :- 70000
Amount to be invested : - 20000

Should I pay corporation tax on 70000 or 50000 this year? Or can I delay corporation tax on the amount 20000 till the Tax year when I receive the investment amount back with profit or loss and declare dividend.

Regards