Should I invest company cash in stocks and bonds?

This is a question that I am often asked by clients seeking higher returns on their cash than they would otherwise achieve from a bank, where they do not want to extract the cash from the company due to the tax that would be suffered on dividends, or believe that the investment would be taxable deduction in their accounts.

We often get questions from our clients on what to do with their company’s cash reserves, especially if they are holding off from extracting the cash for personal tax reasons.

“Can I do something with my cash reserves to earn a higher return rather than it just sitting in the bank?”

The short answer is yes. Although, in some cases, share and bond trading in a limited company may not be the most efficient option when compared to investing as an individual.

Tax risks and implications of investing company money in the stock market

The key points are:

1. Your investments are not treated as a trading expense. This means you do not benefit from Corporation Tax relief. Instead, whichever securities you buy will sit on your company’s balance sheet as an asset until you sell it.
2. When you sell the asset you will pay corporation tax on any gains. However, unlike individuals, companies do not have an annual exemption for capital gains. This makes it more efficient for an individual to make investments rather than a company
3. There used to be a indexation allowance afforded to companies (which increased the base cost of investments based on inflation, however, this is no longer the case. In other words, it used the be debatable, but now investing is far more favourable from a tax point of view for individuals.
4. If you make a loss when selling an investment, you cannot use it against your regular ecommerce revenue; it can only be set against other gains from the same investment activity.
5. If you were to pursue this route you must be careful that the level of investment activity is minor relative to your main trade. It can both affect your accounting and tax treatment, as well as alter your position with respect to Entrepreneurs relief.
6. Tax treatment depends on individual circumstances and may be subject to change in the future.

How to maximise the return on your company’s money

With the above implications clarified, what are your options?

Invest in the stock market in a separate Investment Company

The most common structure is to set up a separate company and provide it with an intercompany loan. This avoids some of the pitfalls highlighted above and insulates the main trading company from risks in the investment company.

We would recommend seeking professional advice on your investment decisions. Key is to minimise your trading costs when choosing an investment platform (broker).

Choosing an investment platform

There are multiple platforms that allow you to open accounts and invest funds as a company. These include:

1. InvestEngine‍

If you’re keen on keeping costs low and enjoy buying and holding Exchange Traded Funds (ETFs) or earning from Money Market Funds, then InvestEngine is likely an excellent choice. With incredibly low fees, this platform allows company accounts and has over 770 ETFs to choose from.
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InvestEngine fees:

Platform (custody) fee: £0
‍Per trade fees: £0
Currency conversion (FX) fee: 0% (since all the ETFs are denominated in £s)
ETF costs (OCFs): Depend on ETFs you select
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Who is InvestEngine for?

Since this is an ETF-focused platform, it's not the best for investors who want to pick individual stocks or mutual funds but it is best for:

• Long-term, ETF-focused investors who want 0% platform fees
• Business owners looking to leverage Money Market Funds and who value automatic savings features
• Those who want low fees for regular trading

Go to InvestEngine and under "Accounts" select "Business Account" to get started.

This is an affiliate link and we may get a commission for users who sign-up. InvestEngine did not ask to be included in this content and this is written in our own words.
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2. interactive investor (ii)

If you’re looking for a large menu of investment options and prefer flat, predictable fees, then ii might be the platform for you. ii allows you to create a Company Account where you (and up to 4 nominated individuals) can invest in UK and international stocks, funds, ETFs and investment trusts.

You will need to first open a general Trading Account and/or ISA charged at the base Platform fee (£4.99/month). Once you’re registered, you can bolt on the company account for £30 per month.

In short, a Company account with II will cost you a flat fee of either £34.99 or £41.99 per month, depending on how much you invest.
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interactive investor fees:‍

Platform (custody) fee:
£4.99/month up to £50,000 invested, then
£11.99/month (unlimited)

‍Company Account Fee: £30/month

‍Per trade fees:
£3.99 (UK & US Shares)
£0.99 (Dividend reinvestment)

‍Currency conversion (FX) fee: 1.5%
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Who is interactive investor for?

ii's fee structure means it may not be the best for small investors or frequent traders but it is the best for:

• Long-term investors with larger portfolios who prefer the value from paying a flat monthly fee over percentage-based fees.
• Those who wish to leverage investment research and tools and a wide range of investment options, including funds, stocks (inc. US stocks), ETFs and investment trusts

Go to the interactive investor Company Account to get started.
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Invest in your pension

Another option is for your company to contribute to your pension, e.g. workplace pension or SIPP, and receive Corporation Tax relief in the year that they are paid (subject to certain restrictions). They are also National Insurance free which makes them tax advantaged, at the cost of tying the money up until retirement.

Re-invest in the company

If cashflow is great, consider using it to fuel growth in your own business. Upskill yourself, hire in skilled individuals, or up your marketing! We work with a number of great companies who can help you take the next step on your ecommerce journey - just send us an email.

Accountants for ecommerce businesses

If you're not yet a client and would like to learn more, get in touch with us today.

Remember, when you invest your capital is at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future. The value of your investments may go down as well as up. You may not get back all the money that you invest. This communication is not intended to be a personal recommendation. If you are unsure about the suitability of an investment product or service, you should seek advice from an authorised financial advisor.