What can you do with money In business account?

liquorice_2

This maybe a dumb question but I hear conflicting info.

Can I put money from my business account elsewhere? i.e. premium bonds, savings account etc.

My accountant says I can in theory every week take all the money out and do as I please with it but come tax time I will need money to pay my taxes (business & personal). This is also the case with 2 other people I work with (who have a different accountants) when they asked, but.....Some people I work with say it must stay in company name. These are people who have been contracting for 15+ years!

Since January I have invoiced £18kish, have £4k of expenses (mileage, lunch etc). I have put aside 25% of £14k (£3500) to hopefully cover taxes etc and maybe give me some back, but I have taken this out of business account and put into premium bonds (may win that Million!!!).

Is this Ok or do I need to kill my accountant?!

longforgotten

The idea is to withdraw what the business can afford. It will not go down well if you have withdrawn that much that the business is no longer worth anything. If you think you have withdrawn too much you can always re-introduce it before the end of your financial year, as long as you have not spent it..........

WHA

If you are a limited company, you CANNOT take out the money to invest/use in a personal capacity - if you do so, you bear the tax consequences of the taxable benefit in kind on the beneficial loan interest. Some people are happy to pay the benefit in kind income tax and associated employers NIC, but it reduces the return you are getting by investing it privately.

If you are a sole trader or partnership, you can indeed do whatever you like with it.

Debt_Free_Chick

liquorice wrote: »

Since January I have invoiced £18kish, have £4k of expenses (mileage, lunch etc). I have put aside 25% of £14k (£3500) to hopefully cover taxes etc and maybe give me some back, but I have taken this out of business account and put into premium bonds (may win that Million!!!).

Sounds like you're a sole trader and not a limited company.

If so, then there is no distinction between "business" money and personal money. It's all personal. Even if you leave the money in the business account, it will count as drawings i.e. as if you had simply spent it.

If you're a limited company, it's completely different - money in the business account is the company's money and not yours. (The company being an entirely separate legal entity, even if you own it).

liquorice_2

Right guys......cheers for the replies albeit worrying:eek:

I am a freelance designer, was with brooksons til xmas but decided from january 1st ill go through my.....LTD Company:rolleyes:

The company has no outgoings other than my expenses. It just gets paid.

It sounds like the only way I can move money would be to put it into a company savings account in the comanies name then? I cant just keep it aside and put it back in before the end of the tax year?!

If that is the case I am very unhappy with my accountant as I did confirm this with him a few times first after reading other topics on here and on the net. What makes it more worrying is that they are a respected & recommended accountant by the local tax office.

His answer was very much on the lines of.....

'You can empty it every week if you like, just be carefull you keep enough for tax at the end of the year'

longforgotten

Sounds like you're a sole trader and not a limited company.

If so, then there is no distinction between "business" money and personal money. It's all personal. Even if you leave the money in the business account, it will count as drawings i.e. as if you had simply spent it.

I am afraid this is not correct 'that even if you leave it in the business account it will count as drawings'. If you are a sole trader your accounts will be made up of a profit & loss account, Balance sheet and capital account . This may not be the case if your business is so small it is not worthy of a full set of accounts but anyway. In a full set of accounts the balance of the business bank account will appear on the Balance sheet and the 'drawings' in your capital account

Debt_Free_Chick

longforgotten wrote: »

I am afraid this is not correct 'that even if you leave it in the business account it will count as drawings'. If you are a sole trader your accounts will be made up of a profit & loss account, Balance sheet and capital account . This may not be the case if your business is so small it is not worthy of a full set of accounts but anyway. In a full set of accounts the balance of the business bank account will appear on the Balance sheet and the 'drawings' in your capital account

Yes, sloppy wording by me

But the end result is the same. Even if a sole trader leaves all the income they receive in a "business" account, it will still be part of their income for tax purposes - subject, of course, to the deduction of any allowable expenses.

The cash at bank may well be on the balance sheet, but the income will be on the P&L and the profit taxable as income. It matters not - for tax purposes - whether any cash at bank is left "in the business" or drawn and spent.

longforgotten

If they have 'spent' more than the the business can afford, leaving the business being worth nothing or worse a negative figure there can be repercussions. The likelihood is that the business has a bank overdraft and will be incurring a higher level of bank charges/interest because of money being 'spent' on drawings. The Inland Rev will say that part of the bank charges/interest will be disallowable because of it funding the traders 'drawings'. The amount will then be added back to the profit, or increase the loss, on the tax computation and therefore does effect the tax calculation

adypem

Am I missing something here, can't you just withdraw the money as dividends ???

longforgotten

I was talking about sole traders, or partnership, accounts not limited companies.