Contractors' Questions: How to invest my company's leftover cash?

Contractor's Question: I have some money sitting in my company account earning no interest. The money is split between money I'm holding for HM Revenue & Customs and money I've not drawn as dividends, partly to reduce my overall tax liability. How can I best make this leftover money work for me? What do other limited company owners do with excess money in the company account?

Is it possible to set up a high interest/regular saver/notice account in the company name? Is it advisable to invest the money in stocks and shares in the company name (assuming I have personal provisions to cover
any losses)?

Expert's Answer: It is important to make sure that your corporate money works as hard as possible otherwise inflation will erode its spending power by the time you come to withdraw it from the company.

Yes, it is possible to open a deposit account or a fixed term bond. Thanks to the historically low Bank of England base rate and in common with all savings deposits, your company funds wont attract an earth shattering level of interest sadly.

In terms of accounts you might consider, a lot depends on the amount you have built up and the term that you are happy to leave the money tied up. For an account with relatively easy access, Standard Life pays 1.9% on balances upwards of £50,000.

Remember; corporate money is protected by a depositor's guarantee for small businesses on sums of up to £50,000 with a single institution. It does pay to make sure that you don't find yourself with savings pots with several institutions only to find that they are all subsidiaries of a single FSA entity, otherwise only one £50,000 guarantee would apply across all of your money.

You ask about investing the money in stocks and shares in the company name, assuming you have personal provisions to cover any losses. Online stock dealing firms, for instance, often offer this facility, although as with any self-
investment you do need to be able to devote the necessary time and effort in research and management to make this worthwhile.

Another option would be to buy pooled investments where you either track a market or have a manager pick a wide range of stocks on your behalf and this may be more desirable because it leaves you free to concentrate on the day job/enjoy your weekends.

Finally, consider that your company will be potentially liable to pay corporation tax on any interest and gains in each trading year that they arise. A solution would be to hold the funds in a corporate offshore bond where you benefit from what's known as 'gross roll up'. Your interest and any growth to the investments is simply ring-fenced within an offshore wrapper and you only pay company tax when these funds are encashed from the bond. In this way, you may be able to time encashment for a time when tax rates are low or perhaps when you had been able to engineer a trading loss.

The expert was Tony Harris, of ContractorMoney, an independent financial adviser to contractors.