Investing company money

funkey_monkey

Hi,

I've got a small contracting company and I have just over £100k in the bank which is generating 0% interest.  I've spoken to my accountant and I have been told that I am able to withdraw the money and invest it for the company.

I'm thinking of going down the passive investment route as I just don't want to pay fees for active investment.  I've got some person money invested with a local adviser who has placed the money in an Ascentric account (now MandG Wealth).  I'm not overly impressed with the return (I'm in higher risk setup) as I have an ISA in Lifestrategy100 which is doing as well if not better.

Is the LS100 a decent fund still or what else should I be looking at?  I'm planning to put about £50k - £75k into a fund/portfolio and hold the remainder as a cash reserve.

All opinions welcome.

Thrugelmir

If you withdraw the money then invest it your name then it's no longer company funds. 

funkey_monkey

I was told I could set up the fund in the company name...

El_Torro

Ignoring the legalities / technicalities of doing this (mainly because I don't know if you can do this while keeping the money as owned by the company) VLS100 isn't a terrible choice of fund. Personally I'd prefer to put it in a global tracker rather than a fund that is overweight in the UK. No one can say which of those two options will generate a better return though. 

As always with investing you need to be prepared to keep the money invested for at least 10 years. You can of course invest for less time but the less time you invest for the higher the chance of the money being worth less when you cash it in than when you invested it. 

Is this money required to keep the company running? Or is it essentially profit? If the money might be needed I'd be concerned about investing a significant amount of it. Even investing in a lower risk fund than VLS100 won't give you guarantees. 

Gary1984

I'm sure your accountant will have told you this but the usual thing is to set up a new company for the investments. When you started your company you'll have told Companies House what the company would do, which probably wasn't as a vehicle for investments. Once the new company is set up you can loan money to it from your first company and invest that way.

Also remember your company will pay corporation tax on profits made from trading. Dividends received will be free from corporation tax though but you would then need to pay dividend tax to get the money out of your company and into your name.

So all this starts to sound like a hassle and expensive from a tax and fees point of view. Why not just declare a dividend and invest in your own name. You need to pay dividend tax but you'd need to pay it at whatever point you extract the funds in any case. If you have a spouse/partner you could invest £80k in ISAs in your own names in the coming weeks as we're almost into a new tax year. This would mean no further tax on the investments beyond the one off dividend tax.

Or pay an employer pension contribution into a SIPP and reduce your corporation tax bill?

These options would probably be simpler and more tax efficient.

dunstonh

 I've spoken to my accountant and I have been told that I am able to withdraw the money and invest it for the company.

That would be unusual unless you are using loan arrangements.   

I was told I could set up the fund in the company name...

That isn't drawing it out of the company then.

Which method of accounting do you use? (if has an impact on the investment wrapper choice)
An offshore bond can be more favourable to some firms depending on the accounting method (as you have the ability to decide when gains are treated in the accounts).

You also need to be careful that your company doesn't get classified as an investment vehicle.  i.e. it still is only a small part of the company and the trading side fo the company is the primary part.

What are the plans for the money?  (in case other options are better - such as pension or taking the hit on dividends and having it available personally)

I'm thinking of going down the passive investment route as I just don't want to pay fees for active investment.  I've got some person money invested with a local adviser who has placed the money in an Ascentric account (now MandG Wealth).  I'm not overly impressed with the return (I'm in higher risk setup) as I have an ISA in Lifestrategy100 which is doing as well if not better.

VLS100 is very high risk.  Whereas most advised investors tend not to be that risk level with investments. So, it is quite possible that you and your adviser are not aligned in your investment risk.

Is the LS100 a decent fund still or what else should I be looking at?  

Not a straight answer on that is the VLS100 fund is the odd one out in the VLS range.  The others are all mult-asset funds whilst VLS100 is a managed global fund (despite using underlying passives).       Many people would not use VLS100 as a global tracker would be cheaper.  It really depends on whether you like Vanguard's management decisions or not.

MDMD

Also if your company is VAT registered and it gets income from an exempt activity (financial services) you may end up with a partially exempt business. 

So another reason to do it in another legal entity.