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A 2nd bank account for tax & VAT

Is it worthwhile opening a 2nd bank account to put aside tax & VAT i.e. admin, interest etc?

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Hi everyone, a little advice if possible please.

I have a LTD company and am thinking that it would be a smart idea to put aside the tax & VAT that I will owe at the end of my financial year. Rather than do this within a single business bank account, I'm wondering if it's possible to put it into a separate account and earn interest (however small) from. Would this second bank account have to be a business a bank account or could it be any type of personal bank account? Also, would this movement of funds require a paper trail in case HMRC come a knockin'?

Bigger picture, is this opening of a second account for a five figure turnover business worthwhile, both for admin and for the interest that could be earned i.e. is this the best way to make use of the money that has to be kept aside for tax and VAT?

Many thanks

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20th Jan 2019 16:33

If it's a personal, and not a business account, you will effectively be drawing funds personally and laying yourself open to problems unwinding that position.

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20th Jan 2019 16:34

hankmartell wrote:

Would this second bank account have to be a business a bank account or could it be any type of personal bank account?

Yes of course the company can open a separate account to save up for its future VAT and CT payments. But why you are asking whether the account the company may open for that purpose can be a personal account is beyond me.

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20th Jan 2019 17:09

It's a common error to assume that your company is the same as you.

It's not.

Your company has assets. You have assets. If someone sues the company, they can only take the company's assets. That's the whole point of having a company. It stops creditors making a claim on your house and other personal assets.

So, as explained above, if you take the company's money and put it in an account in your name, your company is lending money to you. There are tax consequences of this.

However, this only applies if you owe the company more than it owes you. If you put money into the company to set it up, you may not have a problem.

Your accountant will be able to advise you based on real figures, rather than the vague facts you posted.

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By DJKL
20th Jan 2019 18:33

I sweep up our surplus funds to a company deposit account, previously I used a Clydesdale Telebank paying 0.10% but with our current bank (small private bank) we are getting, wait for it, the vast rate of 0.40%.

It is really not much of an earner unless the sums held are really pretty large.

It is possible to use say Funding Circle but it is a risk reward question re return, I did this with my own company (but only with funds I did not need to use, not tax monies) and whilst my headline rate of interest was high the two bad debts we picked up in the circa 15 months took the shine from the returns (though they were still positive) There are risks and for short term money not really suitable.

Stockmarket can work for much longer term funds, I have one client with vast surplus funds and no intention to ever close his company who invests mainly in UK shares and ITs, earning 3-5% dividend yield, but again comes with capital risk and has put ER at risk with his own company's shares (not sure it was actually available given scale of surplus cash his company held re what could reasonably be required as working capital in the first place) and is not suitable for the short term:- 5-10 year horizon as a minimum really needed.

Fine if intention is never to extract the funds from his company- in his case the company will become a top up pension in retirement, if needed- but this needs real critical mass for the frictional costs of running the company to eternity to be considered reasonable and carries significant investment risk.

In effect decent returns currently tend to require risk taking so for short term money your sensible options will not likely bring much in the way of returns but ought not have any adverse impacts.

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20th Jan 2019 20:17

Yes, it’s a good idea if you lack discipline. The interest will be modest and worth giving little thought to.

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By Lisa R
21st Jan 2019 12:01

Check with your existing bank what other options they have.

We bank with Barclays and set up a sweep account a few years back, this leaves a set amount in your regular business account then at the end of each day transfers any amount over that into an interest earning account.

We actually ended up turning the sweep function off after a while but it's easy for us to move the money between accounts whenever we need to online.

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