If you have surplus cash in your business then corporate investing is a way to put that cash to good use. If you have cash in the bank, you can put some of it into investments to hopefully generate additional revenue.
Corporate Investing is when you invest the profits/surplus cash in your business instead of drawing it as income or holding it in cash bank accounts. The added bonus to this is that withdrawing the money to invest is tax-efficient.
As a business owner, if you withdraw money through dividends or through a salary, you can result in a big tax bill. Allowing profits to build up in your business account means that it isn’t working for you or the company. Making a savvy decision to withdraw this money to make considered investments could pay off in the future.
Advantages of Corporate Investing
- Investing profits is more attractive to companies that’s to the decrease in corporation tax from 28% in 2010/11 to 19% in 2020/21 (although this is set to increase to 25% in 2023).
- Rather than choosing tax-efficient ways to invest their profit (e.g. pensions), business owners are now free to invest without incurring large tax bills.
- Corporate investing is a way of generating more money that can be reinvested in the business
- Investing gives your cash the chance to grow instead of sitting in a savings account with a low interest rate
Disadvantages of Corporate Investing
- Even if you decide to invest cautiously, you could lose money if the investment market crashes or simply fails to achieve the returns on cash
- Corporate investing may not be an option if you need to make money fast in order to help cash flow
- It may not be wise to make investments if you are worried about cash flow
- If you need access to cash then make sure you leave sufficient funds in an easy access account before investing any surplus
Popular options for Corporate Investing
- Funds
- Trusts
- Pensions
- Individual stocks
- Bonds
- Commodities
What to consider when investing
Your corporate tax payments will be dependent on the size of your business and the business status. For example, micro-entities (defined as a business with a turnover of less than £632,000, 10 or fewer employees and/or a balance sheet total of up to £316,000) will only have to pay tax on investments once they’re ‘realised – surrendered at least in part or sold on. Typically if your company is a sole-trader or partnership (self-employed) you would be liable for Capital Gains Tax at personal rates, however limited companies would pay corporation tax.
Small companies will be taxed on any ‘basic financial instrument’ such as stocks, shares, bonds or options and futures contracts, once they are realised. However, other investments (any commodities such as gold or oil) will be declared in your annual tax return.
Don’t forget capital gains tax as well, check if investments will push you over the threshold, which is £12,300 for the 22/23 tax year. If you are thinking about estate planning when making corporate investments then consider if you qualify for business property relief, which will allow business-related assets to be passed down tax-free after two years.
There are many considerations when it comes to corporate investing and this can be a little complex. With the help of an accountant you can maximise the tax-efficiency of your investments. You should discuss and clarify with your accountant the size and nature of your company to ensure you comply with HMRC regulations, this is not down to Resolve Financial Solutions.
We, as independent financial advisers, can help you find out the best solution for you. Please get in touch if you would like to discuss your options further.
*Please note:Your capital is at risk. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Any reference to legislation and tax is based on our current understanding of HM Revenue & Customs practice as at date of distribution and are subject to change in the future. The value of tax reliefs to the investor depends on their financial circumstances and are subject to change.