Money sat in BMM account: how can I make it work harder?

[Rivendell]

Hi folks,

Nearly at end of my first year contracting. I have approx 25k sat in my BMM account (where I hive away cash for Corp Tax and VAT). I haven't paid any corp tax to date and have a rough idea how much I will need. Likewise for my next VAT liability. There should be a decent chunk left over as I've been quite conservative. However, I haven't been very wise (I think) in just letting this money sit there and not earn and real interest. My accountant says I cannot transfer this money anywhere unless it's to a savings account in the Business name. I had wondered about offsetting it against my mortgage somehow to reduce payments?

Any ideas, tips etc...very welcome

Thanks

[kingcook]

Hi folks,

Nearly at end of my first year contracting. I have approx 25k sat in my BMM account (where I hive away cash for Corp Tax and VAT). I haven't paid any corp tax to date and have a rough idea how much I will need. Likewise for my next VAT liability. There should be a decent chunk left over as I've been quite conservative. However, I haven't been very wise (I think) in just letting this money sit there and not earn and real interest. My accountant says I cannot transfer this money anywhere unless it's to a savings account in the Business name. I had wondered about offsetting it against my mortgage somehow to reduce payments?

Any ideas, tips etc...very welcome

Thanks

There's your tip/answer.

[TheFaQQer]

I had wondered about offsetting it against my mortgage somehow to reduce payments?

The Puma has posted about this in the past. Something about you signing a letter to the company which says that you are looking after the money for them, so that they can benefit from the better protection if the bank goes bust.

However, I'd agree with your accountant rather than some random bloke on a forum.

[jamesbrown]

The Puma has posted about this in the past. Something about you signing a letter to the company which says that you are looking after the money for them, so that they can benefit from the better protection if the bank goes bust.

However, I'd agree with your accountant rather than some random bloke on a forum.

Sounds highly unlikely. The FSCS scheme protects small businesses, and the money can be distributed across multiple (protected) accounts. Sounds like loan territory (i.e. not workable)...

[TheFaQQer]

Sounds highly unlikely. The FSCS scheme protects small businesses, and the money can be distributed across multiple (protected) accounts. Sounds like loan territory (i.e. not workable)...

You can read the thread here.

[northernladuk]

You can hold the company money in trust and then use it but I am sure that involves more than writing a letter to the company. It hasn't been tried and the principle of it is wrong so if it came to a head I can't see you winning.

We have this question many times and despite raft of options from pretty dodgy to completely illegal there doesn't seem to be anything you can do with it.

[jamesbrown]

You can read the thread here.

Thanks for the link. It's an interesting thread, but the justification here about acting in the best interests of the company doesn't seem like a substantial argument to me, as one can protect the the money through the normal route of (one or more) small business savings accounts that are subject to the FSCS.

[TheFaQQer]

Thanks for the link. It's an interesting thread, but the justification here about acting in the best interests of the company doesn't seem like a substantial argument to me, as one can protect the the money through the normal route of (one or more) small business savings accounts that are subject to the FSCS.

How substantial does an argument need to be?

I could leave it in the company account, or I could hold it in trust elsewhere.

I could use a notepad to take notes at meetings, but I use an MP3 player to record the meetings, and then write the notes up on a laptop later.

(I don't actually do either, but the argument that it's not a substantial reason isn't something that I agree with)

[jamesbrown]

How substantial does an argument need to be?

I could leave it in the company account, or I could hold it in trust elsewhere.

I could use a notepad to take notes at meetings, but I use an MP3 player to record the meetings, and then write the notes up on a laptop later.

(I don't actually do either, but the argument that it's not a substantial reason isn't something that I agree with)

I suppose it comes down to risk tolerance, but PUMA is arguing that, were it to be investigated, the justification would be that it's in the best interests of the company. I don't agree on that point. As to whether you can do it, obviously you can, but I wouldn't be confident in the legality or in the practicality of managing company funds via a personal account. As NLUK mentions, it doesn't appear to have been tested and the underlying principle is highly questionable. Just my 2c, of course

[Wanderer]

This has been discussed quite a lot here. Lots of people are nervous about the director's loan thing. Personally, I don't take loans from my company.

PUMA is arguing that, were it to be investigated, the justification would be that it's in the best interests of the company. As NLUK mentions, it doesn't appear to have been tested and the underlying principle is highly questionable.

I'm not a tax professional and I know the tax system is quite illogical at times but from what I've read about director's loans, I could see the inspector just laughing at PUMA's deed of trust and say "It's a straight forward directors loan. Here's a bill for BIK, 25% S455 tax, penalties and interest". You will then need someone pretty powerful to defend your case.

There was a long discussion of this.

I posted a list of options that you can consider.

There was a good discussion on the topic with input from a few accountants that may be interesting. I started a thread about director's loans which has some good information.

To summarise:

1. A directors loan is legal but if it's > £10k then it has to be approved by the directors in a minuted board meeting (a formality for most of us).
2. If it's < £5k and paid back before the end of the tax year then there are no implications.
3. If it's a penny more than £5k at any time during the year then it has to be declared on your P11D, something like a "beneficial loan" or a "loan to participators". You either pay tax on the BIK of the interest free loan OR pay the company interest on the loan (at the HMRC official rate currently 4%) and avoid the BIK charge. The interest becomes company income which you can then pay back to yourself as dividends (minus tax) so you get most of that interest back.
4. If it's still outstanding at the end of the company year then it has to be declared on your company return
5. If it's still outstanding at 9 months after the end of the company year then there is a 25% S455 charge on the value of the loan.
6. You can't go paying the loan off to avoid the S455 charge and then taking it out again the next day ("Bed and breakfasting").

It seems to me that HMRC are primarily concerned with preventing people taking loans as a way of extracting money from the company without paying tax which is why they have the S455 charge.

Accountants generally discourage directors from taking loans, probably because directors tend to take large loans from the company and spend it all on beer and hookers then find that they are not be able to pay it back. This leaves their company no money to satisfy it's CT and VAT liabilities and HMRC quite understandably not too happy about this situation.