BACKGROUNDAs a firm, Acumen Financial Planning has

many small and medium sized businesses as

clients. A significant number of these firms

have seen the benefit of investing surplus

business cash, rather than retaining it all in a

company bank account and, in all likelihood,

earning little or no interest.

For many years a very tax efficient way for

companies to invest has been through the use of

a company owned offshore bond. Funds can be

invested in a diversified portfolio and investment

returns are possible over the longer term.

This is still the case, but there has been a

recent change to legislation which all small

companies that invest via offshore bonds

should be aware of.

WHAT HAS CHANGED?It has always been the case that corporation

tax will be payable on investment gains. In the

past, tax on gains only became payable once an

offshore bond was encashed, either wholly or

in part. This will still be the case, but only if:

1. The company qualifies under the “micro-

entity” regime, and 2. Company accounts are

prepared on a “micro-entity” basis.

Investing for small companies Offshore Bonds

GUIDE | JANUARY 2018

In order to qualify under the micro-entity

regime, the company must meet two or more

of the following criteria:

1. Turnover – no more than £632,0000

2. Balance sheet total – no more than £312,000

3. Number of employees – no more than 10

If a company qualifies as a micro entity under

these criteria, it has to make a decision as to

how company accounts are prepared. Micro-

entity accounts are more basic, and might not

be suitable if for example they are needed

to present to a bank or 3rd party to obtain

credit. On the other hand, micro-entity

accounts might be perfectly adequate for many

companies’ purposes.

WHAT HAPPENS IF A COMPANY DOES NOT QUALIFY AS A MICRO-ENTITY, OR IT NEEDS TO HAVE FULL (RATHER THAN MICRO-ENTITY) ACCOUNTS PREPARED?If this is the case then, rather than gains on

company held investments only being taxed

when they are encashed, they become taxable

on an annual basis. If a loss is made on an

investment in a particular year then a tax

refund should apply.

WHAT HAPPENS IF A COMPANY DOES QUALIFY AS A MICRO-ENTITY AND IT HAS MICRO-ENTITY ACCOUNTS PREPARED? Nothing has changed – gains on investments

are only taxed when the investment is encashed

in whole or in part.

CONCLUSION We anticipate that for many of our clients,

including many one-person contractor limited

companies, this change in legislation will

have no effect – because they will qualify

as a micro-entity and will have micro-entity

accounts prepared. That said there may be

times that, even for qualifying companies,

full accounts are required. In those cases an

unexpected corporate tax liability could arise

many years before it was anticipated.

Even if this is the case, there should not be

any increase in the overall tax liability over the

time that an offshore bond investment is held.

It is more a case of “paying as you go” rather

than at the end of the bond’s life.

It should be said in conclusion that this is a

complex issue. In this guide we have attempted

to distil the legislation in plain English so that

it is understandable. As ever it is imperative to

be aware, and to take advice if you hold, or

are considering corporate investments.

Prior to making any decisions you may wish

to take advice from a suitably qualified

professional tax adviser or your accountant.

Disclaimer: the information provided in this guide is based on our

current understanding and legislation at the time of publication (January

2018). Although endeavours have been made to provide timely and

accurate information, Acumen Financial Planning cannot guarantee

that such information will continue to be accurate in the future. No

individual or company should act up on such information without

receiving appropriate advice from a qualified professional. Acumen

Financial Planning is authorised and regulated by the Financial Conduct

Authority, FCA no: 218745. Tax planning and tax advice is not

regulated by the Financial Conduct Authority.

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