HMRC seeing you as an 'investment company'
Discussion
Is it right that HMRC look very closely at companies who have too agreat a propotion of assets invested, with the intent of regarding them as an investment company?
My small business has about 70% of our reserves, which equate to about 1.5 years of gross profits, invested in managed funds. We have very little in terms of tangible assets (few computers and a £10K company car). They are invested because we don't need the capital for a few years and don't want to take it out as dividends at the moment, kept for just the kind of economic downturn we now have.
I was told that having too great a proportion of assets invested and having large cash reserves was guranteed to get HMRC interested?????
My small business has about 70% of our reserves, which equate to about 1.5 years of gross profits, invested in managed funds. We have very little in terms of tangible assets (few computers and a £10K company car). They are invested because we don't need the capital for a few years and don't want to take it out as dividends at the moment, kept for just the kind of economic downturn we now have.
I was told that having too great a proportion of assets invested and having large cash reserves was guranteed to get HMRC interested?????
brokenfather said:
I dont think its the relation of the invested assets to capital assets that matters, but the relation of investment income to trading income that does.
So if we liquidatred the investments and took the profits , and they exceeded what we have earned from the 'day job' in that year we might get treated as an investment company?There are no hard and fast rules on this. The Revenue will assess the situation and make a judgement - which you can appeal against if you don't agree with it.
If the company is a normal trading company and acquires some non trade related assets, whether it ends up being recategorised as an investment company or not, if and when it sells those non-trading assets, it will be subject to Capital Gains tax on the disposal if there is a gain. If there is a loss on the disposal, it will NOT be able to offset that loss against its normal trading profits.
If the company is a normal trading company and acquires some non trade related assets, whether it ends up being recategorised as an investment company or not, if and when it sells those non-trading assets, it will be subject to Capital Gains tax on the disposal if there is a gain. If there is a loss on the disposal, it will NOT be able to offset that loss against its normal trading profits.
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