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Company Money in Personal Account

Newsletter issue - July 2012.

Here's a nice problem to have: your company holds a lot of money, but you want to leave it there for now. Perhaps you don't want to be taxed personally if you take the money out of the company. The company may also have long-term plans for the funds, such as acquiring another business or property when a suitable target is identified.

In the meantime the company may only be able to earn 1% interest on the money, but you could earn say 4% on the same amount in your personal deposit account. Could you hold the funds on behalf of the company (as a nominee), and place them in your deposit account to achieve the higher interest rate? It is possible, but there are several issues to deal with:

  1. The bank needs to be clear that the beneficial owner of the funds is the company and be willing to open an account on this basis. So the account name needs to be something like: 'A Brown as nominee for AB Ltd'.
  2. There needs to be trust deed or similar document signed on behalf of the company that appoints you as nominee for the company's money to be deposited in your account.
  3. The board of directors of the company must be seen to have made an informed decision about this arrangement, and issue clear instructions as to the terms for depositing the funds. This should be recorded in the board minutes.
  4. The bank may deduct income tax from the interest paid on the deposit account, which would not be due if the account was held in the company's name.
  5. The Taxman needs to be convinced the funds in your account are not a loan from the company to you as a director or shareholder of the company.

This last condition is the most troublesome. If you don't meet it and it is deemed the company has made a loan to you which remains outstanding nine months after the company's year end, the company must pay tax of 25% of the value of that loan. You will also be taxed on the deemed interest payable on the loan at 4%, where the loan exceeds £5000 at any point in the tax year.

There are other practical considerations, so please discuss any such transfer of funds from the company with us first or if you have already done this without meeting the conditions above!

 

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