Tax implications when investing profits

M

Moggy

Guest
Hi,

If I were to invest my company profits in say a rabo direct investment account, would there be any extra tax implications? i.e Even though the money is invested is it still considered profits? Would I need to pay corporation tax on this money while it is invested or is it considered an expense until such time I cash it in and it is back in my current account?
 
You would still have to pay tax on the profits.
The interest earned would be subject to tax at 25% and, if you don't pay yourself dividends, the interest will be subject to an additional 20% tax.
 
It's about retianed profits. You really need to see your accountant about this. The best way of investing profits can vary from company to company.
 
Thanks for help guys. What is the 20% additional tax called? I will talk to an accountant but I like to have a certain amount of info before hand so that I can have a reasonably intelligent conversation about it. Hence all my dumb questions :)
 
Moggy said:
Hi,

If I were to invest my company profits in say a rabo direct investment account, would there be any extra tax implications? i.e Even though the money is invested is it still considered profits? Would I need to pay corporation tax on this money while it is invested or is it considered an expense until such time I cash it in and it is back in my current account?
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Example
Profits after salary is 40k ,you have 40k cash in your company . Before your year end 31.12.2007 you invest the money in Rabobank

After this transaction your P&L for the YE 31.12.2007 will still show profit of 40k,you will pay corporation tax on 40k,your balance sheet will just show 40k in investments rather than in cash

If you are a service company if you don't distribute the 40k within 18 months you will be hit with a surcharge of 15% of 50% of 40k

If at the end of 2008 you have the 40k still in Rabobank and you have made 4000 in interest you will pay corporation tax of 25% on this interest and again if you don't distribute this investment gain within 18 mths you are hit with a 20% surcharge
 
Thanks guys. They really don't make things easy for companies. Sounds like I'm better off just putting all profits into salary and doing this post income tax.

Cheers for advice.
 
Moggy said:
Thanks guys. They really don't make things easy for companies. Sounds like I'm better off just putting all profits into salary and doing this post income tax.
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Correct. You should not be leaving profits in a company generally and certainly not to accumulate cash in a deposit account.
 
How would someone go about growing their business? - say for example you were to make one big sale every two to three years, and wanted to plow back the profits into the company (to pay for advertising or wages etc in future years).

Does anyone else think this is a crazy situation?
 
The surcharge doesn't apply to normal trading companies

The idea is that individuals earning money through services can't effectively shelter that income at low corporation tax rates in companies
 
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