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I am a contractor working in the UK and I own a limited company here.

I briefly spoke with an accountancy about investing my company's cash although I haven't followed the topic with them. The answer I got is that it would incur taxes on the profits and it's generally not recommended. Probably there are more reasons why the accountancy doesn't recommend it but as mentioned I haven't dug into that.

So I thought I would ask this question here.

I'm not planning to shut down my company in the nearest future (which would allow me for Members Voluntary Liquidation and it would incur only 10% tax) so I am looking at alternatives.

Have any of you done that before and is it something I could use to increase my profit?

I'm thinking about (if it makes sense) putting this money into index funds or bonds or something similar with low risk.

Is it complex from the accountancy perspective? Would it incur more tax then it is worth it?

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I think that accountant is talking nonsense.

Sure, if your LLC invests money, and that money makes profits, the LLC pays taxes on those profits. But you still have those profits. If you take the money as dividend payments, and invest it, you pay a lot more taxes straight away.

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  • Yes, I draw money from my LLC up to the higher tax bracket, and the rest sits there idle. A downside I haven't thought about is that this kind of low risk investments have to be for at least 5 years, and I am not sure if I stay that long in the UK.
    – matewilk
    Aug 13, 2018 at 9:40
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This is more complex than it sounds.

One: Your accountant talks nonsense. And this is the type of stupid nonsense that would make me change accountants. Yes, if you make profits (with your investments) you pay taxes on them. now, I am not sure where your accountant lives, but in this universe taxes are below 100% so you still have more (profit - profit tax) then without investing (profit from investing: 0). As to my info, LLC tax is up to 24% - which leaves you a minimum of 76% profit. Seriously, this is child math for an accountant. Now if he said it is not worth it - he may be right. If you mean investing like in a savings account, fun with near zero interest and then paying the accountant on top. But the way you sound it he is incompetent.

Now, there is another thing. While you may pay higher taxes, it still may be wise to pull that money out and then invest it personally. Why? LIABILITY. All money in the LLC is there in case something happens for an easy grab. This is a risk based decision you must make. It may actually be worth (possible?) to liquidate and form a new LLC just to remove the funds, if they are big enough - unless you have a brand name attached etc. But if I would be a typical (assuming: IT) contractor, the LLC is a vehicle without intrinsiv values, and I would NOT be comfortable having significant funds parked in there. I would remove it, move it out of country (I like to split my investments, in case something happens) and make sure it is separate from my business. Taxes for me are a secondary thing in this case - i would adhore the risk side.

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  • I don't think liquidation is possible. First, I'm still contracting and planning to do so for the next 1.5 year at least. Yes, this is typical IT contracting with no intrinsic value LLC. Yesterday I quickly research MVL possibilities and it turns out HRMC introduced new rules in 2016 and you cannot start a new business within 2 years after liquidating the previous one (of course if it's justified you can I assume). As of the accountant, I haven't followed with him so I wouldn't blame the accountant here, I think they do a good job so far, so I would rather blame myself for not researching.
    – matewilk
    Aug 13, 2018 at 10:17
  • Then you can just make a new LLC and move your contract over to the new LLC on the next renewal. But yeah, that rule sucks - so no. Still ,the math makes no sense. Imagine you make a decent investment - 50% in 5 years. Would that still make no sense? Depends on the amount of money.
    – TomTom
    Aug 13, 2018 at 10:21
  • I don't want to mess around with HRMC obviously so spawning new companies out of the blue is out of discussions. Maybe if there was a way to move money (without tax) from one LLC to the other newly created LLC which would invest that money?
    – matewilk
    Aug 13, 2018 at 10:25
  • Nah, no way. would require invoicing. Seriously, you make it sound like you have a million in there ;)
    – TomTom
    Aug 13, 2018 at 10:42
  • If I had millions I would just MVL it and rest for the rest of my life :) I'm just looking into profiting a bit more and learning about investing at the same time, but doing it without breaking the bank by withdrawing it from LLC and hitting hight tax band. So yeah, probably the best for now is to contact my accountant first
    – matewilk
    Aug 13, 2018 at 11:10

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