Ltd Company purchasing of 'investments'
Discussion
Probably one for Eric....
What rules are there regarding Ltd company (sole director) purchasing things for investment purposes? eg art, vehicles, funds etc. In the case of vehicles (if allowable) can the car be registered without being treated as a company vehicle (and therefore taxed as one). With funds, obviously companies can buy them for things like pension liabilities, but how is this actually done if not for a pension scheme?
p.s this also going to my accountant that I haven't got huge amounts of faith in...so, come the New Year may be changing
What rules are there regarding Ltd company (sole director) purchasing things for investment purposes? eg art, vehicles, funds etc. In the case of vehicles (if allowable) can the car be registered without being treated as a company vehicle (and therefore taxed as one). With funds, obviously companies can buy them for things like pension liabilities, but how is this actually done if not for a pension scheme?
p.s this also going to my accountant that I haven't got huge amounts of faith in...so, come the New Year may be changing
This is not an answer as such but I had an interesting situation when my company decided to buy a personal reg plate. The reg plate contain my initials.
Initially the revenue classed it as a BiK, however when I asked them to clarify how a personal plate on a company owned vehicle could be of a benefit to me they decided it had no BiK!
It is however on the company books as an asset and I will be required to charge VAT and declare any profit if/when it gets sold.
So I think it may come down to a simple fact - do you personally derive any benefit from the asset that you have bought? If you do, then a BiK payment is required.
Initially the revenue classed it as a BiK, however when I asked them to clarify how a personal plate on a company owned vehicle could be of a benefit to me they decided it had no BiK!
It is however on the company books as an asset and I will be required to charge VAT and declare any profit if/when it gets sold.
So I think it may come down to a simple fact - do you personally derive any benefit from the asset that you have bought? If you do, then a BiK payment is required.
Yep, investment companies ARE treated very differently from the normal small trading company. For a start all the various small trading company low tax rates and Zero tax rate thresholds are simply abolished. Therefore, any surpluses generated by the company will be subject to the NORMAL Corporation Tax rate, which is 30%
Don't forget also, that when the company disposes of its investments at a later date, it will be subject to Capital Gains Tax at 30% - and it will not be able to avail itself of the personal Capital Gains Tax allowance of (currently) £8,500.
Don't forget also, that when the company disposes of its investments at a later date, it will be subject to Capital Gains Tax at 30% - and it will not be able to avail itself of the personal Capital Gains Tax allowance of (currently) £8,500.
cirks said:
I'm not actually talking about an investment company per se. I'm looking at a trading Ltd company that wants to invest some of it's revenue/profit to further the business profitability. The main business would still be in trading. Does this change your answer?
Yes - the issue is then the ratio of trading to investment, otherwise you still fall foul of the investment rules.
Have a Google, there should be lots of info out there. Or just wait for Eric...
Eric Mc said:
Yep, investment companies ARE treated very differently from the normal small trading company. For a start all the various small trading company low tax rates and Zero tax rate thresholds are simply abolished. Therefore, any surpluses generated by the company will be subject to the NORMAL Corporation Tax rate, which is 30%
Eric,I assume you meant 40% CGT?
Secondly, if you come to sell the company currently you are entitled to 75% Tax (taper) relief - meaning you only pay 10% CGT on the disposal of the business. If, however, the company is deemed (by the IR - and they have certain measures they use) to be an 'investment company' rather than a trading one, then you won't get the full Tax Relief on the disposal.
Don't companies pay CGT at their top rate of Corporation Tax, whatever that happens to be?
If a company is MAINLY a trading company with some investments, then, provided the investments make up a relatively minor part of its overall activities and generate a relatively minor element of its income, then it will not lose its "Small Trading Company" status. Thre are no hard and fast set of rules which defines when investment activity ceases to be a minor part of a company's activities.
Lots of trading companies have investment income, deposit accounts, properties (usually their business premises, investments in other companies (often subsiiaries) etc.
Capital Gains Tax would still apply to disposal of these investments however, no matter what status the company has.
One other thing "Investment" companies are supposed to do is revalue their investments EVERY YEAR and show that revalued amount in their balance sheet.
If a company is MAINLY a trading company with some investments, then, provided the investments make up a relatively minor part of its overall activities and generate a relatively minor element of its income, then it will not lose its "Small Trading Company" status. Thre are no hard and fast set of rules which defines when investment activity ceases to be a minor part of a company's activities.
Lots of trading companies have investment income, deposit accounts, properties (usually their business premises, investments in other companies (often subsiiaries) etc.
Capital Gains Tax would still apply to disposal of these investments however, no matter what status the company has.
One other thing "Investment" companies are supposed to do is revalue their investments EVERY YEAR and show that revalued amount in their balance sheet.
Eric Mc said:
Don't companies pay CGT at their top rate of Corporation Tax, whatever that happens to be?
If a company is MAINLY a trading company with some investments, then, provided the investments make up a relatively minor part of its overall activities and generate a relatively minor element of its income, then it will not lose its "Small Trading Company" status. Thre are no hard and fast set of rules which defines when investment activity ceases to be a minor part of a company's activities.
Lots of trading companies have investment income, deposit accounts, properties (usually their business premises, investments in other companies (often subsiiaries) etc.
Capital Gains Tax would still apply to disposal of these investments however, no matter what status the company has.
One other thing "Investment" companies are supposed to do is revalue their investments EVERY YEAR and show that revalued amount in their balance sheet.
I think you'll find that CGT is always 40% unless there's a Tax Allowance of some sort. Having said that, I very rarely get involved with small companies, so I guess there maybe a gap in my knowledge. Regarding the model that the IR use to differentiate between a trading and an investment company, they apply the 20% rule. If a company's income from investments is greater than 20% then it can be deemed as an investment company rather than a trading company. This is relevant for individuals wishing to claim Taper Relief - which effectively gives them a 75% Tax relief on the capital gain (effectively 10% CGT is payable, providing the shares have been owned for more than two years).
I'm pretty sure I'm correct - also, disposals by companies are still subject to the old Indexation rules rather than Taper Relief.
My understanding was that there was no specific CGT rate of tax. The tax paid was whatever the top rate of tax the individual or company was due to pay for that tax year. The maximum for individuals is, of course, 40% and the maximum Corporation Tax rate for small companies is 30%.
In theory, it could be possible for individuals to pay CGT at 10% or 22% and Companies to pay at Zero% or 19% .
My understanding was that there was no specific CGT rate of tax. The tax paid was whatever the top rate of tax the individual or company was due to pay for that tax year. The maximum for individuals is, of course, 40% and the maximum Corporation Tax rate for small companies is 30%.
In theory, it could be possible for individuals to pay CGT at 10% or 22% and Companies to pay at Zero% or 19% .
Thanks for the replies so far. Just going back to part of my original question, can anyone help?
"What rules are there regarding Ltd company (sole director) purchasing things for investment purposes? eg art, vehicles, funds etc. In the case of vehicles (if allowable) can the car be registered without being treated as a company vehicle (and therefore taxed as one). "
ie I'm wondering about the vehicle example specifically. You've covered the Investment vs Trading rules for the Company but what about any limitations as to what things can be 'invested' in? (sorry for the poor grammar there
)
Can a car be bought without it being taxed as a company vehicle?
"What rules are there regarding Ltd company (sole director) purchasing things for investment purposes? eg art, vehicles, funds etc. In the case of vehicles (if allowable) can the car be registered without being treated as a company vehicle (and therefore taxed as one). "
ie I'm wondering about the vehicle example specifically. You've covered the Investment vs Trading rules for the Company but what about any limitations as to what things can be 'invested' in? (sorry for the poor grammar there
) Can a car be bought without it being taxed as a company vehicle?
A CAR is not really "taxed" as a company vehicle. In fact, a car owned by a company will probably be eligible for Capital Allowances (although sometimes very limited Capital Allowances) and could therefore help reduce the company's taxable profits and Corporation Tax bill.
However, a car owned by a company and made available to an employee or a director of that company so that they can use that car for non-business activities will generate a Tax Benefit In Kind (BIK) which is essentially taxable on the EMPLOYEE or the DIRECTOR through adjustments to their PAYE coding. There IS an additiaonal company liability in the form of Class 1A Employer's National Insurance Contributions based on the BIK value of the car.
In theory, a company owned car can escape BIK IF the car is NEVER made available to a director or employee or, if it is, it is only EVER used purely for business purposes. Indeed, the car only has to be AVAILABLE for private use to fall into the BIK trap.
If the car is a Classic car (as defined for BIK purposes) you may find that the tax treatment is not too bad compared to modern cars.
However, a car owned by a company and made available to an employee or a director of that company so that they can use that car for non-business activities will generate a Tax Benefit In Kind (BIK) which is essentially taxable on the EMPLOYEE or the DIRECTOR through adjustments to their PAYE coding. There IS an additiaonal company liability in the form of Class 1A Employer's National Insurance Contributions based on the BIK value of the car.
In theory, a company owned car can escape BIK IF the car is NEVER made available to a director or employee or, if it is, it is only EVER used purely for business purposes. Indeed, the car only has to be AVAILABLE for private use to fall into the BIK trap.
If the car is a Classic car (as defined for BIK purposes) you may find that the tax treatment is not too bad compared to modern cars.
cirks said:
Thanks for the replies so far. Just going back to part of my original question, can anyone help?
"What rules are there regarding Ltd company (sole director) purchasing things for investment purposes? eg art, vehicles, funds etc. In the case of vehicles (if allowable) can the car be registered without being treated as a company vehicle (and therefore taxed as one). "
ie I'm wondering about the vehicle example specifically. You've covered the Investment vs Trading rules for the Company but what about any limitations as to what things can be 'invested' in? (sorry for the poor grammar there
Can a car be bought without it being taxed as a company vehicle?
After A day, a pension scheme will be able to invest in works of art, fine wines, residential property, and lots of other stuff.
Eric Mc said:
In theory, a company owned car can escape BIK IF the car is NEVER made available to a director or employee or, if it is, it is only EVER used purely for business purposes. Indeed, the car only has to be AVAILABLE for private use to fall into the BIK trap.
in other words, even if I only used it for travel to and from client sites (which, at the end of the day is my business purpose) it can't be parked at my house as it would be classified as being available for private use? What happens if the registered office is the house therefore the car is actually left at company premises!
Even if your home is the registered office of the company, it could only count as a business premises if the business mainly operated from there.
To be honest, to have a private type vehicle on the company books and stating categorically that it is NEVER, EVER used or capable of being used for ANY private journeys is asking rather a lot of the Inland Revenue to believe.
Indeed, what you are trying to claim is that the vehicle is actually a "pool" car and that it is only used for business and is available for employees to drive on business only journeys.
To be honest, to have a private type vehicle on the company books and stating categorically that it is NEVER, EVER used or capable of being used for ANY private journeys is asking rather a lot of the Inland Revenue to believe.
Indeed, what you are trying to claim is that the vehicle is actually a "pool" car and that it is only used for business and is available for employees to drive on business only journeys.
Eric Mc said:
Even if your home is the registered office of the company, it could only count as a business premises if the business mainly operated from there.
To be honest, to have a private type vehicle on the company books and stating categorically that it is NEVER, EVER used or capable of being used for ANY private journeys is asking rather a lot of the Inland Revenue to believe.
Indeed, what you are trying to claim is that the vehicle is actually a "pool" car and that it is only used for business and is available for employees to drive on business only journeys.
I was told that keeping the car at the business address which was also a home wasn't allowed if you were trying to claim business only use, and that as the insurance will say private use the IR will hang you out for it. I tried to install a gym, but there is a specific exemption that says such equipment can't be at a residential address even if you run the business from there. Seeems a bit unfair that the IR wil let ICI do it but not Joe Bloggs Ltd.
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