Can I Invest IT Revenues in my Other Business? Can I Invest IT Revenues in my Other Business?
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  1. #1

    Nervous Newbie


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    Default Can I Invest IT Revenues in my Other Business?

    I wonder if anyone can provide some business advice?

    Background
    I am the owner of 2 Limited Liability Companies.
    Company_1 is engaged in freelance IT work (outside of IR35 for now)
    Company_2 rents out holiday homes

    Issue
    I would like Company_1 to invest some of its capital in Company_2 to lower my tax position.

    The routes open to me appear to be:
    Option A) Company_1 loans Company_2 money
    Option B) Company_1 buys a share of Company_2
    Option C) ???

    I would like to go for Option A). My understanding is that the terms of the loan and the interest rate (if any) are solely decided between the 2 companies (although presumably should appear reasonable to HMRC).

    Has anyone else done this or have any advice on doing so?

    Many thanks in advance.

  2. #2

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    what does your accountant say?

    You can do both options without any issues. I'm not sure there are any other options.
    But I'm not sure either option achieves your objective of lowering your tax position. Your tax position is immaterial to the matters of your companies.
    And no matter how you slice this you can't get the money put of either company without a tax implication.

    So what precisely are you trying to achieve?
    See You Next Tuesday

  3. #3

    Should post faster


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    I suspect that company 1 has one shareholder and company 2 has many shareholders so the bright idea here is lend excess cash to company 2 to do a distribution and get the money out using other people as tax mules

    I ve never thought this scenario through actually 🤗. But if the op was doing this it would not work because dividends and corp tax not paid on inter company loans

  4. #4

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    Quote Originally Posted by Lance View Post
    what does your accountant say?

    You can do both options without any issues. I'm not sure there are any other options.
    But I'm not sure either option achieves your objective of lowering your tax position. Your tax position is immaterial to the matters of your companies.
    And no matter how you slice this you can't get the money put of either company without a tax implication.

    So what precisely are you trying to achieve?
    Good question - What does the accountant say? I have a "low monthly fee, don't get very involved" accountant, hence my use of the forum. But I will ask them...

    Lance, thanks for asking the question by the way - it's amazing how things work out in your mind as you try and answer someone else's query!

    The plan is that Company_1 will run for another 2-5 years as an IT consultancy, then I'll stop consulting and the company will effectively be dormant, just receiving loan repayments from Company_2, which it will pass to me as dividends (or salary). Earnings from Company_1 over the next 2-5 years will be invested in Company_2, which will earn far less than Company_1 ever did but is sustainable indefinitely with little/no effort and will act as my source of pension income (via dividends or salary).

    So you're right, I'm not changing my tax position - if I left the money in Company_1 untouched it would incur no Corporation Tax or PAYE/NIC. What I'm doing is changing how I earn money by reinvesting the earnings of Company_1, which I can't continue forever, into a lower earning but sustainable Company_2, which can continue forever.

    Does that make any sense?

  5. #5

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    Quote Originally Posted by IanWhitby View Post
    Good question - What does the accountant say? I have a "low monthly fee, don't get very involved" accountant, hence my use of the forum. But I will ask them...

    Lance, thanks for asking the question by the way - it's amazing how things work out in your mind as you try and answer someone else's query!

    The plan is that Company_1 will run for another 2-5 years as an IT consultancy, then I'll stop consulting and the company will effectively be dormant, just receiving loan repayments from Company_2, which it will pass to me as dividends (or salary). Earnings from Company_1 over the next 2-5 years will be invested in Company_2, which will earn far less than Company_1 ever did but is sustainable indefinitely with little/no effort and will act as my source of pension income (via dividends or salary).

    So you're right, I'm not changing my tax position - if I left the money in Company_1 untouched it would incur no Corporation Tax or PAYE/NIC. What I'm doing is changing how I earn money by reinvesting the earnings of Company_1, which I can't continue forever, into a lower earning but sustainable Company_2, which can continue forever.

    Does that make any sense?
    Sort of.

    I think you need to run the numbers over a 10 year cycle and see what it looks like.
    And compare that to if you took dividends from CO1 and lent to CO2 personally.
    And compare to if you invested personally rather than using CO2 as a vehicle.
    And then run those numbers based on some assumed changes to tax laws (don't forget we have a £2T debt to service).

    For something medium to long term I'd be inclined to keep it as simple as possible. I'd also assume that at some stage you're going to be paying upwards of 30% tax no matter how you slice and dice it.
    See You Next Tuesday

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