September 24th, 2018

I’m holding too much cash in my business at low rates of interest. What can I do?

If you are in the happy position of holding too much cash in your limited company then you have a few issues to think about:

  1.  If your bank fails, you are only insured for up to £85,000 – so it’s worth considering moving cash to other banks on deposit.  Any new accounts need to be opened in the company name and directly transferred from the company.  Any monies transferred out into a personal account would trigger a personal tax liability.
  2. Holding large cash balances in a current account can leave you vulnerable to fraud on that one account.  Consider splitting it into more secure deposit accounts to help protect against this and ask your bank about additional security measures that can be applied before funds are accessed.
  3. Think about why you are holding the cash.  Think about whether the money can be working better for you.  One thing to consider is to make a lump sum pension contribution.  You can do this up to £40,000 per year currently.  The company would get a tax deduction for the contribution (saving you 19% tax) and there is no personal tax consequence for yourself.  There are also opportunities to make sure that you are properly insured personally that the company can pay for and get a tax deduction with no personal tax consequence eg relevant life cover and executive income protection.  You could even just throw caution to the wind and just take the money out now and enjoy it whilst you can and suffer whatever your marginal rate of tax is right now!
  4. One note of caution is that on winding up the company, in order to obtain the best tax advantages the company needs to be a trading company. Holding cash balances and actively managing that cash for investment leaves you open to risk of denial of reliefs on winding up as HMRC may argue that the company is an investment company.

If you are interested in exploring the options above further take a look at our webpages here which introduce Continuum who would be happy to discuss your situation

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Alison obtained a First class degree in Accountancy and Management at UCLAN University. She then went on to qualify as a certified accountant in 2006 and became a founder member in 2011.

Alison trained at a practice in Liverpool and, within her 10 years there, she developed as an accounts manager and obtained a varied portfolio of clients which has provided her with a range of experience in accounts, audit, VAT and taxation.
Alison specialises in giving sound jargon-free advice to a range of small and medium sized businesses.

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