Your Guide to Corporate Investing Through a Limited Company UK

How to invest business cash in 5 steps

Put your company cash to work and invest safely following these steps:

1. Choose an investment platform or broker

Firstly, you’ll need to choose an investment platform or broker to invest through.

There are many factors to consider when choosing the right broker, from trading commission to account fees.

Not all brokers offer a business account, so you’ll need to select one that does have this. Platforms that offer business investment accounts in the UK include:

• Investengine
• eToro
• IG
• Interactive Brokers
• interactive investor.

Visit the website of the broker you’re interested in to check whether it’s suitable for your needs.

2. Open an account

After choosing a broker, you’ll need to open an account with them. This process can typically be started online.

Businesses may be required to provide more details than individuals when opening an account. For example, eToro require information on:

• The type of legal entity that your company is
• Which country your company is incorporated in
• A detailed description of your business activities
• A copy of relevant documents, such as passports or utility bills for shareholders and directors
• A copy of your company’s Memorandum and Articles of Association, or the local equivalents if your company is incorporated outside of the UK. You will need to provide these in English regardless of where your company is based.

These are just the rules for using eToro, and other platforms may ask you for more details than this, while others may require fewer. Be prepared to have information like this to hand when you open the account.

You can check your broker’s website to find out what information you’ll need.

3. Deposit funds

Next, you’ll need to deposit funds into the investment account. You’ll typically be able to do this using any payment method that the broker accepts, provided that this is in the name of the company.

Platforms may have a minimum deposit limit for their corporate accounts. For example, eToro require a $10,000 sum to use their corporate account.

It can be sensible to only deposit as much as your company can afford to – that is, don’t invest money you need to pay bills or run the company day to day, as there’s always a chance you’ll get back less than you invest.

This could put your business in a position where it’s unable to operate, which is why it’s prudent to only invest money that you won’t need in the short term.

4. Choose your investments

Next, you’ll need to choose your investments. You may have read my guide to investing surplus business cash, in which I discussed the pros and cons of six different investment options for corporate investors.

Read below for a brief summary of those assets.

Stocks and shares

This involves buying individual stocks and shares in companies. You can generate a return by selling shares that have risen in value, or collecting dividend payments if these are offered by the company.

Dividends received on corporate investments will be tax-free.

Investment funds

A fund is a collection of other investments in one package which you can then buy units in. This offers you instant diversification, essentially buying multiple investments all at once.

Like stocks and shares, you can generate a return by selling fund units for more than you paid for them, or you can receive dividends over time. Similarly, dividends received will be tax-free.

Investment bonds

An investment bond is a type of loan you can make to another party, typically a company or a government, in return for interest payments.

For businesses, any interest distribution will be subject to the “loan relationship rules”, which means that tax is due on any:

• Increase in value of the bond on an annual basis
• Interest from the bond as it arises.

Micro-entities are not subject to these rules in the same way. Find out more about what this means later in my guide.

Pension contributions

Rather than investing directly in assets straightaway, you could contribute your money to a pension and invest it through there instead.

You’ll receive Corporation Tax relief on pension contributions, and they are also National Insurance-free, making them a fairly tax-efficient method of investing business cash.

Property

Property investment can be useful as there are two ways you can generate a return:

• Capital growth if the property increases in value over time
• Income payments received from rental income if you let your property.

Property investors should note that there can be additional tax concerns when investing in bricks and mortar, including Capital Gains Tax (CGT), Income Tax, and Stamp Duty and Land Tax (SDLT).

Company-to-company loan

A company-to-company loan involves lending your cash to another business in return for interest payments.

This is a fairly high-risk strategy, so make sure you’re willing to take on this additional risk before you invest.

Choosing the right assets for your business

Finding the right asset for your business is simply a case of deciding what your investment goals are and then investing accordingly.

Of course, nothing stops you from combining these investments together to design a strategy that works for you, and these are far from the only assets and options available to you as a corporate investor.

Make sure you research any investments you intend to buy before you invest.

5. Make your investment

Once you’ve chosen a broker, opened your account, deposited your investment funds, and selected your investments, you’re ready to put your business money in the stock market.

Remember to keep an eye on your portfolio to ensure it continues to provide your business with what it needs.

Tax implications of investing through your business

Tax is a major factor when choosing to invest through a business. There can be tax advantages to business investments, such as using pension contributions to make the most of Corporation Tax relief and the National Insurance benefits.

There are also some other tax considerations, both positive and negative, to think about. Below are a handful of tax implications that are important to note.

There will be tax to pay whether you invest personally or through the business

Firstly, you may want to consider why you would invest any cash through the business versus withdrawing it and investing personally.

There will be tax to pay either way, so here are a few of the charges you might face.

Investing personally

To invest business cash personally, you’ll need to withdraw it from the business. There are two main ways for business owners to do this: withdraw the money as income, or as dividends.

Whichever way you do this, you’ll likely be subject to either Income Tax or Dividend Tax. That means a significant chunk of your money may be eaten by tax before you’ve even invested.

And, investments held outside of an ISA may be subject to Capital Gains Tax (CGT) if any gains they generate exceed your CGT annual exemption (£12,300 in 2022/23).

Investing through the business

Meanwhile, you won’t have to pay Income Tax or Dividend Tax on your cash if you invest it through the business, nor will you have to pay CGT on any gains.

However, investment gains generated through your company will still typically be subject to Corporation Tax as they will form part of the profits made by your business.

The rate of Corporation Tax in 2022/23 is 19% for most companies – although tax rates are set to rise to 25% in April 2023. This increase will not affect small businesses, which will be protected by a Small Profits Rate of 19%.

This rate is still lower than even basic-rate Income Tax, charged at 20%, meaning it may still be more tax-efficient to invest through the business rather than withdrawing it personally.

However, it is higher than the CGT rate for basic-rate taxpayers, standing at 10%. This may mean you pay more tax on investment gains made in the company, especially as you can no longer make use of the indexation allowance which would have reduced this.

Tax is complex and, as you can see, there are many moving parts. As a result, it may be worth seeking independent advice if you’re unsure which option will be best for you.

The accounting status of the business might affect your tax position

Another factor that can influence taxation is the classification of the business. This may mean you can manage tax on your investments more effectively.

Micro-entities

A business is considered to be a micro-entity if it meets two of the following criteria:

• A turnover of £632,000 or less
• Have 10 employees or fewer
• £316,000 or less on the company’s balance sheet.

In this instance, you may be able to pay tax on a historic cost basis, meaning you’ll only owe tax in the accounting period where you take a withdrawal.

It may also allow you to defer your tax bill, giving you additional flexibility in where to place the bill. Tax deferment essentially allows you to pay the tax bill at a later stage.

This may allow you to offset losses by withdrawing gains in a less profitable year.

Small companies

To be a small company, you must meet two of the following criteria:

• A turnover of £10.2 million or less
• Have 50 employees or fewer
• £5.1 million or less on the company’s balance sheet.

Small companies are taxed on what’s referred to as “basic financial instruments” as soon as you realise the value of those investments. That includes stocks and shares, funds, and bonds.

Investing may affect your ability to use tax reliefs

An important taxation point to note is that your investments may affect your ability to use key tax reliefs, such as Business Asset Disposal Relief and Business Relief.

Business Asset Disposal Relief

You may find that you’re no longer eligible for Business Asset Disposal Relief (BADR) if investment activity accounts for more than 20% of total company income.

BADR can reduce your CGT liability when you come to sell or dispose of part or all of the business. So, it may be worth factoring this in as BADR can be valuable later down the line.

Business Property Relief

Similarly, if the primary purpose of the business is considered to be investment, you may lose access to Business Relief.

Business Relief can allow you to reduce your Inheritance Tax (IHT) bill by 50% or 100% on qualifying assets.

You may still be eligible for Business Relief with your cash and investments, provided that they:

• Haven’t been used within the running of the business itself for at least two years
• Aren’t being used for a future business purpose at the time of the transfer.

If these assets break these rules and are excluded from Business Relief, the remaining value of the business may still be eligible. This will depend on certain restrictions, such as what percentage of the business is made up of investment activities.

Investing through a limited company versus a trading company

Another consideration to make when investing company money is whether to do so through the limited company itself, or through a separate investment company.

Through your limited company

While investing through limited company structures may be more tax-efficient than personal investing, you may have concerns about BADR and Business Relief as mentioned above.

In the long run, this may see you pay more in either CGT or IHT if you are unable to use these reliefs.

Through a separate investment company

Meanwhile, investing through a separate company purely for investments may involve administrative costs and additional duties, but it might provide some useful benefits.

For example, this would make it a separate legal entity. As a result, financial trouble in one company would not affect the other, while also removing the issue of lost tax reliefs.

Make sure you speak to a financial advisor before setting up a separate company, as this can be a complicated process.

Unsure about investing company money? Take financial advice

As you can see, investing through your business requires careful consideration. While there’s the potential to generate a return on your business cash more tax-efficiently than investing personally, there are also other concerns you’ll need to take into account before you do so.

If you’re unsure about investing your company’s money, consider taking advice from an independent financial advisor. An advisor will be able to look at your business finances in detail and offer you personalised advice suitable for you and your individual situation.

Best platforms for corporate investing through a limited company UK

With investment, your capital is at risk. This could mean the value of your investments goes down as well as up.

Please note

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.

Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.