I am an IT contractor in the UK and want to invest surplus cash to avoid corporation tax.
What I can invest in without changing my company's status?
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avoid corporation tax
There aren't many avenues to save on corporation tax legally. The best option you can try is paying into a generous pension for yourself, which will save some corporation tax.
Buying a house
You can claim deduction for the mortgage payments, but profits on selling the house will require paying capital gains tax on the profit. You can rent it out, this will be decided between your mortgage provider and your company, but the rent will go towards as income.
Buying a car
Not worth it. You will have to pay Class 1A NI contribution for benefits in kind. Any sane accountant will ask you to buy the car yourself and expense the mileage.
Any income generated from the cash you have is taxable. Even the interest being paid on your money is taxable.
lets sat If I buy a house on company's name, It will declared as expense and will deduct from profit. but I am not sure If I can rent it out as a IT LTD company. that's my questions.
Buying a house is not an expense, it is a transfer of assets. The house itself, is an asset. So if you have $100,000 in cash, buy a house for $35,000, your total assets will remain the same ($100,000), but your asset mix will be different (instead of $100,000 in cash, you now have $65,000 in cash, and $35,000 in property).
You can expense the costs associated with buying the house (e.g. taxes, interest, legal fees), but the house itself stays on the asset side of your balance sheet. To refine the example above, if you buy the house for $35,000, and pay $5,000 in misc fees related to purchasing the house, your assets are now $95,000 ($60,000 in cash, $35,000 in house): the $5,000 reduction is from the actual fees associated with the purchase. It is these fees that lower your profit.
Being not familiar with UK rules, in Canada and the US, and likely the UK, you would then depreciate the house over its useful life. The depreciation expense is deducted from your annual net income.
If you rent out the house, what you can do is expense any maintenance fees, taxes, etc., on the house itself. This expense will count as a negative towards the rental income, lowering your effective taxable income from the rental. E.g. rent out a flat at $1,000/month, but your property taxes are $3,500/year, so your net income for tax purposes (i.e. your taxable income in this case) is $12,000-$3,500=$8,500.
The only way to avoid paying the corporation tax is buying a house for say $100,000 and then letting it burn down by accident. So your money is gone without anything to show for it, your profits are gone, and you pay no corporation tax.
You pay corporation tax on profits. Profits that you invest are still profits.