Micro entity: Tax/Accounting treatment of stock market investments

drb01

Hi

I am the sole director of a very simple LTD consultancy company that is a micro entity. Last year I used HMRC’s downloadable PDF (CT600.pdf) that does all the tax and accounting stuff (CT600, abbreviated accounts and balance sheet, and Companies House filing).

However I would like to invest some of the company’s excess cash in equities and/or bonds on the stock market. The trouble is I have no idea how to treat a stock market investment, or any coupon / dividend from the investment, for tax or accounting purposes. Not even sure if HMRC's CT600.pdf can handle it, or even if I have to mark it to market. Does anyone know how to do this, and where I put the various entries in the PDF file? Any help would be much appreciated…

pjclar02

Hello there


You cannot use the HMRC template for such complex transactions - it is intended only for the most basic of basic sets of accounts. You will need some more specific software to deal with this.


Broadly, you need to account for the temporary change in value of the investment, but not adjust for this in the tax computation. In the tax computation, you only treat this as a capital disposa when you sell. Dividends are likely to be tax free but depends on exactly what they are.


Hope this helps

chrismac1

Given that the template does not cope with this, I'd be inclined to stick it into fixed assets at cost and leave it at that. It might be worth considering whether your company may become a "close investment holding company" or may do so - Google this.

It was more of a big deal in years gone by, when the main rate of corporation tax was much higher than the small companies rate. a CIHC must pay tax at the high rate.

drb01

chrismac1 wrote: »

Given that the template does not cope with this, I'd be inclined to stick it into fixed assets at cost and leave it at that. It might be worth considering whether your company may become a "close investment holding company" or may do so - Google this.
.

So then I don't mark it to market for accounting or tax. But what about dividends (presumably franked income) or coupons (paid gross)? And what would I do when I sell it?

drb01

pjclar02 wrote: »

Hello there


You cannot use the HMRC template for such complex transactions - it is intended only for the most basic of basic sets of accounts. You will need some more specific software to deal with this.

Hope this helps

Is there any software that is dead easy to use for a really simple company with virtually no expenses even? And not toooo expensive..