What to do with limited company funds?

[msport123]

Sure there may be a few others in a similar situation. One of my companies has surplus funds sitting it (rolled over from retained profits). My accountant informs me that the HMRC may start treating my company as an investment company because of the level of retained profits it holds in relation to the profit it generates.

Question is what to do with these retained funds? Running costs, business expansion etc are all accounted for so the funds do not need to be reinvested within the business and can be used for something more productive.

I've been pretty lazy when it comes to pensions, so think its about time I should consider this. I know I've missed years where the profits could have been put into a pension pot and we would have saved the corp tax on this amount, being young and foolish is my only (bad) excuse!

So I could invest into property, bonds, stocks and shares, pension. Anything else to consider?

Thanks...

[trickywoo]

A good financial adviser would likely save you multiples of their fee.

I doubt you'll get an actionable answer off PH because there will be so many personal variables.

[PurpleMoonlight]

Surely anything you invest in under the Ltd is going to compound the potential problem with HMRC.

You need to get the money out of the Ltd and then invest.

Pension is the most tax efficient at point of extraction. If you have some existing pension provision somewhere (excluding state pensions) and have not made any contributions since 06/04/12 you could put in a contribution of £180,000 and get full corporation tax relief.

[98elise]

PurpleMoonlight said:

Surely anything you invest in under the Ltd is going to compound the potential problem with HMRC.

You need to get the money out of the Ltd and then invest.

Pension is the most tax efficient at point of extraction. If you have some existing pension provision somewhere (excluding state pensions) and have not made any contributions since 06/04/12 you could put in a contribution of £180,000 and get full corporation tax relief.

What happens if you've already paid the CT? Do you get that credited back? I went freelance a few years ago and it was more important to build cash in the company than pay into a pension. Now things are stable I want to push spare cash into my pension, especially as I'm looking to retire in 6 years.

I need to discuss it with a financial adviser but I never seem to have the time

[Jockman]

The Corp tax relief is attributed to the year the pension contribution is paid.

PM's example is for using up 3 years unused allowance at 50k + 50k + 40k allowances plus this years 40k.

The 36k tax relief will be in this year. You don't need an IFA for this part. What you do need advice on is where to invest this.

Volkswagen shares?

[msport123]

Thanks for the replies!

Getting the money out effectively is definitely a major issue. I've seen a few people about tax strategies etc but they are all cut from the same cloth and I don't really feel comfortable doing it.

With regards to pensions, I have to admit about knowing very little about pensions but was always under the impression that I couldn't access the pension fund until retirement age? Or has this changed with new regulations about being able to withdraw pension funds earlier?

To be fair to my account he has mentioned several times about pensions, but I've never got round to doing anything about it, or always thought I could use the funds elsewhere to invest into something else, treat myself etc.

At the very minimum I should have the company funds invested in a bond or higher paying interest account, stocks/shares etc to generate the company a better return on its capital.

A trip to an IFA is a must by the sounds of it!

Thanks again everyone :-)

[PurpleMoonlight]

If the pension contribution creates a loss in the trading year the corporation tax against the loss paid in the previous year can be relclaimed, and if there still losses it is carried forward to subsequent years.

Pensions can now be accessed from age 55.

[98elise]

Jockman said:

The Corp tax relief is attributed to the year the pension contribution is paid.

PM's example is for using up 3 years unused allowance at 50k + 50k + 40k allowances plus this years 40k.

The 36k tax relief will be in this year. You don't need an IFA for this part. What you do need advice on is where to invest this.

Volkswagen shares?

Thanks, so in effect I'm not disadvantaged by having initially retained the money in the business. I feel I can operate with a lower war chest so I want to start some serious retirement planning.

I'm 50, and aim to semi-retire at 55 so I need to be putting the money to good use. If I extract it I will have to pay the additional income tax on it, but if I put it in my pension its going to get relief. Seems like a no brainer to me.

[Jockman]

98elise said:

Thanks, so in effect I'm not disadvantaged by having initially retained the money in the business. I feel I can operate with a lower war chest so I want to start some serious retirement planning.

I'm 50, and aim to semi-retire at 55 so I need to be putting the money to good use. If I extract it I will have to pay the additional income tax on it, but if I put it in my pension its going to get relief. Seems like a no brainer to me.

One option is to put the £180k into your SIPP for example, thereby activating the corp tax relief, and use the money to buy your commercial property from yourself. Your SIPP then gives you back the £180k (subject to valuations) and you pay it (ie yourself) a rent of several £000s a year back in to your SIPP. This is a return on investment so doesn't effect the £40k annual allowance you have to put into your SIPP. Use the rent and annual £40k to spread your risk in the SIPP.

Take proper advice and look at SASS as well as SIPPs.