There are a number of ways in which a company can invest its surplus funds, with deposits being the most popular. But like an individual investor, depen-ding on the company’s risk profile, there are several options to consider.
Cash The benefits of money on deposit are that they are relatively risk-free. Interest, once added, cannot be removed. There is a wide choice of providers and because of this competition for your business can be quite fierce. Unit trusts/investment trusts/OeicsYou could also consider a unit trust, investment trust or Oeic. These are available at varying degrees of risk from a wide choice of providers. However, as they are pooled investments, they can offer a lower degree of risk than direct investment into shares. Funds will be managed by a specialist fund manager and you can generally have access to the funds at all times. Like shares, it is possible to benefit from dividend and capital growth although once realised, these are also subject to corporation tax.Life insurance bondsCompanies are also able to invest in life insurance bonds, both UK and offshore. Again, the wide choice of pooled investments offers potential for spread of risk. Life insurance bonds normally allow access to money at all times and 5 per cent of each invest- ment can be taken each year for up to 20 policy years without assessment to corporation tax at the time of withdrawal. This means that, within the 5 per cent each year limit, details of the bond do not need to be included on the company’s self-assessment tax return. Alternatively, the 5 per cent annual withdrawals can be deferred and taken at a later date. It is also possible to offset trading losses of the accounting period against gains under bonds assessable under Schedule D Case VI. A downside is that the death of a last surviving life assured or changing a life assured will trigger a chargeable event, giving rise to a gain and a potential corporation tax liability. The difference between UK and offshore insurance funds is that the offshore funds generally do not pay corporation tax, capital gains tax or income tax and so avoid “double-taxation” exper-ienced when investing via UK life funds. Withholding tax is deducted at source from investment income from most countries. Overall, this means that offshore investment bonds have greater potential for growth than UK life insurance bonds.