If you have the earnings from your business just sitting in a savings account, you should consider investing that money instead to make your money work harder for you. Investing as a limited company is a great way to put your surplus cash to good use and as a bonus, it will help you reduce your tax obligations. Learn more about limited company investing by reading on.
This does not constitute advice and advice should be sought in all instances before acting on it.
Limited company investing overview
When you invest as a business, you are investing the profits of your income as opposed to taking it as income or simply holding it in a cash savings account. When this surplus is not intended to be used as income, you can also withdraw additional money in a tax-efficient way. Investing this money means you put your money to work instead of amassing it in a savings account, even one with a high-yield interest rate.
If, for whatever reason, you are unable to re-invest money into your business or distribute it amongst shareholders, investing it could be the right option for you.
Benefits of investing as a limited company
One of the major benefits of investing as a business has to do with corporation tax, which applies to all profits a business makes and returns on any investments. Over the last decade, corporation tax has taken quite the nosedive, falling from 28% in 2010/11 to just 19% in 2020/21. This means that investing profits is now an even more attractive option for businesses.
Another upside is that investing has the potential to generate even more money that could potentially be put toward your business. Even with higher interest rates at the moment, you’ll be hard-pressed to find a savings account that could generate the same money as investing will.
It’s important to remember that investing is not an inherently risk-free strategy and there is always a chance that you could lose some money, even if you invest cautiously. So, make sure you are taking your attitude toward risk into consideration when determining what to do with any surplus money from your business. Additionally, if you will need access to your profits in the short-term, investing might not be right for you.
What types of investments work best for business investing?
The answer to this question is based on your individual circumstances and a variety of factors.
- How involved do you want to be with your investments?
- What is the level of returns you’re hoping for?
- How long do you want to invest for?
- Which sectors do you want to invest in?
- Do you want to explore alternative investments or go the traditional route?
Professional advice for the best returns
As there are tax implications for investing as a limited company, we strongly advise working with a financial adviser before you proceed. They will be able to maximise the tax-efficiency of your investments and help you retain as much of your liquid profits as possible.
The expert financial advisers at Dental & Medical Financial Services can help you understand your appetite for risk and walk you through your options based on the answers to the questions above. To get started on investing the profits from your limited company, get in contact today.