As the CEO of a trading company, you want to find ways to run your business more efficiently without using off-the-shelf tax schemes. You’re also thinking about raising funds in the future to grow your business. Here’s a simple guide to help you plan ahead.
Background
Your company, ABC Ltd, has been operating for four years. It offers construction services and plant hire, which is a newer and profitable part of the business. You have a yard and garage for your machinery and maintenance work. The company is run by four directors, including you, who are also shareholders, and employs 30 staff members.
The business has built up some savings that aren’t needed for daily operations. You’re planning to expand in the next two to three years, which will use up these funds. You’re also considering bringing in outside investors to help fund growth. Some key questions to explore include:
How to make the most of extra cash until it’s needed.
Whether having one company structure is still the best option.
How to attract investors with tax-friendly options.
Making the Most of Your Savings
You can’t make specific investments without FCA-approved advice, but there are ways to make your money work harder with tax breaks.
Investing in Shares
Right now, your savings are sitting in a bank account earning interest, which is taxed. A better option could be investing in shares. The dividends (payments from shares) are tax-free for small companies like yours if they come from UK or approved overseas companies.
Example: If your company earns £8,000 in bank interest, you’ll pay £2,000 in corporation tax (CT). Switching to shares could save you this £2,000 each year.
Other Investment Options
You could look into Community Investment Tax Relief (CITR). By investing in special projects that help disadvantaged communities, your business could get a tax break of 5% each year for five years.
Example: If you invest £100,000, you could save £25,000 in taxes over five years.
Protecting Your Assets
Right now, your company handles all its business and owns all its assets (like your yard and machinery). This can be risky if something goes wrong. You might want to set up a holding company to own these assets, while your current company focuses on running the business.
This way, if your business faces legal or financial trouble, your valuable assets are safer.
Moving assets to a holding company can be done tax-free using special rules for connected companies.
Attracting Investors
If you need outside funding to grow, the Enterprise Investment Scheme (EIS) could help. This scheme offers tax benefits to investors, like reducing their income tax by 30% and making their shares tax-free if they hold them for three years.
Key Points to Consider:
Your company must issue shares within seven years of starting its business.
Construction services qualify for EIS, but your plant hire operations must not become a major part of your business, as leasing is excluded from the scheme.
Simple Steps for Your Business
Invest extra cash to earn tax-free dividends or consider CITR to support community projects and get tax breaks.
Protect your assets by splitting your business into a holding company and a trading company.
Use EIS to attract investors and offer them tax benefits, but check your activities qualify.
By taking these steps, you can make your business more efficient, reduce risks, and prepare for future growth.