Using company profit to invest in a new business venture

by **Taylorrm1** on Sat Jun 04, 2011 8:53 am

I have recently incorporated a uk ltd company which is currently being used to front my IT contracting activities.

Next year I am looking to start a boat hire business that would require significant up front investment of around £90k+vat in order to purchase the boat/equipment. I would like to use the profit gained through my consultancy work to fund this new venture. The funds required would need to be taken in staged payments between now and next March throughout the boat build.

From a taxation perspective, what would be the preferred options for moving forward with this to minimise my tax exposure? Should I consider starting a new ltd company and invest in this from my existing business, or would setting up a trading name for my current business be a better option? Are there tax advantages for either approach?

I'm currently drawing a salary and taking dividend payments from my company at the minimum level required to support my lifestyle, but would I be better to maximise these payments now and then use this money to fund the boat purchase by way of a loan to the company?

Would I be liable for paying corporation tax on payments made from profit towards purchasing the boat which would ultimately show as a company asset?

Once the boat is purchased, how would I show the levels of depreciation on my books as I expect this asset to have a useful life of 6 years with a residual value of around £40k

Thanks in advance for any responses!

by **pawncob** on Sat Jun 04, 2011 9:24 pm

Company profits are taxable regardless of what you use the money for.
Using a second company will halve the small companies relief available.
You can claim capital allowances on the asset purchase, thereby getting "relief" on the costs.
Depreciation would be the same as any other asset.

Get an accountant.

by **Incredulum** on Mon Jun 06, 2011 6:07 pm

You may find the best solution is to hold it yourself (rather than in a company). If you want limited liability, enter into a limited (liability)partnership with your company. Then you can offset the capital allowances - AIA too - against up-front income.

You do need an accountant so you can go through the various options.

by **Generix** on Wed Jun 08, 2011 10:24 am

Are you thinking about having a pleasure yacht built to charter out?

Not sure about the other tax implications, nor the implications of the reinvestment of profits.

But there are VAT 'schemes' which can dramatically reduce your VAT exposure. There has been a lot of movement in this area lately with HMRC removing a concession which had previously applied following an ECJ case, and also the change in the place of supply of services rules which impact on wet/dry charters (I forget which it impacts).

I am not an expert in the end to en tax implications of these schemes, but I know the VAT side of them fairly well if you need any advice/guidance - I also know someone who specialises in implementing these yacht schemes, probably worth at least a chat with him if there is £18k (assuming uk VAT) at stake.

by **Generix** on Wed Jun 08, 2011 10:28 am

As a bit of further advice, when working on the schemes for the super yachts, VAT tends to be the biggest tax number concerned as if not thought through then the input VAT on build/purchase/import is irrecoverable, not sure if the VAT will as material for a £90k yacht though

by **Taylorrm1** on Wed Jun 08, 2011 1:26 pm

Thanks guys! I do have an accountant, but wanted to do my own research before making any decisions. When so much money is at stake, I want to make sure I'm well informed and fully understand the various options and implications.

Appreciate the additional info on the VAT schemes Generix - I'll do my homework to see if any of these could help as I'm actually looking at inland pleasure craft opposed to super yacht's ... for now anyway!

by **Generix** on Wed Jun 08, 2011 2:03 pm

Taylorrm1 wrote:Thanks guys! I do have an accountant, but wanted to do my own research before making any decisions. When so much money is at stake, I want to make sure I'm well informed and fully understand the various options and implications.

Appreciate the additional info on the VAT schemes Generix - I'll do my homework to see if any of these could help as I'm actually looking at inland pleasure craft opposed to super yacht's ... for now anyway!

Ok, is the craft being built in the EU? If so which territory and which territory will you take delivery? and which territory will you be chartering it? (these are the things you really need to know to identify the potential VAT pitfalls) Also I assume given the value and therefore likely size of the craft you are intending on doing dry charters?