Purchasing shares through a company

[nextbigthing]

I'm interested in doing a few short term trades from time to time which I'd need to pay tax on but don't personally want to be classed as a trader for tax purposes which would effect my other holdings.

I own a company which could hold the shares and pay the tax, however it seems like owning them via a company might be a little more complicated.

Does anybody have any experience in this and any advice? It doesn't have to be a company that holds them, that was just one option. How do you do it?

Cheers,

NBT

[BIRMANBOY]

You can set up a trading a/c and an investment (not trading but holding for growth and dividends) as either a soletrader, partnership or ltd liability or just as an individual. Its not more complicated or less from a company...just a bit fiddly getting it set up. I use DB and they were accommodating but it does require some time, phone calls and countless forms . I have a joint partnership a/c with my partner for investment, two individual for myself personally both trading and investment and an investment a/c through my company. Just don't muddy them together or your accountant will get annoyed. Also makes it easier if you have separate bank accounts for everything. Bottom line is you have to be very focussed on separation and keep excellent records and paperwork.
I'm interested in doing a few short term trades from time to time which I'd need to pay tax on but don't personally want to be classed as a trader for tax purposes which would effect my other holdings.

I own a company which could hold the shares and pay the tax, however it seems like owning them via a company might be a little more complicated.

Does anybody have any experience in this and any advice? It doesn't have to be a company that holds them, that was just one option. How do you do it?

Cheers,

NBT

[Harvey Specter]

Trading doesn't taint long term holds but from an evidenciary point of view, it can be good to separate.

Setting up for a company is not that difficult - the same Anti money laudering rules apply but they aren't a major (trusts are slightly harder) - I think it is just the certificate of incorporation (from companies office website) and proof of ID for each director and shareholder (which isn't an issue if it is just you). Once you have the account, it is no different to an individual.

[Jay]

At a minimum have 2 different broking accounts at 2 different brokers if keeping both in your name, otherwise same as H S above says.
Though for a company you must complete the tax return on an accural basis not a cash basis, whereas an individual you can do either so I understand.

DYOR

[Xerof]

Jay, can you point to something authoritative re accrual basis? My understanding is that for a trading company, you account on a cash basis for p/l, assets are recorded at cost, with no revaluations.

genuine request, as about to finalise accounts for my Company (I would be what you call a bush accountant)

[Jay]

Xerof, an accountant on this site has mentioned it, the guy that was doing contract work, had back issues I think, he has not posted for awhile, cannot remember his name, except it started with S, helpful I know, plus my accountant, when I use to use one, also said that was the case if I used a company structure for trading, I didn't and still don't at present as long term stuff is now under a family trust.

Have remembered, -possibly Shrewd Crude??- posts are pobably still on here somewhere

[nextbigthing]

Thanks all. Two accounts might be easier than using the company then. Cheers

[Xerof]

Jay, cheers. Probably Shasta from what you say

[percy]

Xerof, an accountant on this site has mentioned it, the guy that was doing contract work, had back issues I think, he has not posted for awhile, cannot remember his name, except it started with S, helpful I know, plus my accountant, when I use to use one, also said that was the case if I used a company structure for trading, I didn't and still don't at present as long term stuff is now under a family trust.

Have remembered, -possibly Shrewd Crude??- posts are pobably still on here somewhere

It is Shasta.I would send him a PM so he gets it next time he logs on.A very helpful poster.

[Jay]

Jay, cheers. Probably Shasta from what you say
Yep that was him, could not remember the name -

[Xerof]

Well, my accountant reckons they stay in the accounts at original cost until sold, so I have asked him to provide me with the evidence to back that up. Must be in the legislation somewhere, but he should know where to look. Shall see what comes of it. I DO know that bonds are revalued if you are a trader and of course interest is accrual accounting

I am talking about a Company, in the business of trading financial assets for profit, just to be clear.

[Harvey Specter]

Financial arrangements (bonds) and shares are different. You don't tax unrealised gains on shares, even if a trader.

Arguably you maybe able to deduct unrealised loses but you would need to check that (I think trading stock can be valued at the lower of cost and net realisable value).

[Xerof]

Yep, that makes sense HS. So cost it is then for shares (in profit) or NRV if a loss. I'll see if my accountant comes back with that. The example I gave him was MELCA, so his thinking related only to a share in profit, to be fair

[blackcap]

I also run a company for trading purposes and use shares in my own name for long term holds. It just makes it simpler and avoids tainting either account. I account for the shares in the trading company at cost. The only problem with this is timing of sales so that if you want to defer tax you have to wait till after balance day before selling or if you want to bring losses forward you need to sell before balance day. But they are side issues and generally do not impact on the day to day operations. You can off course restate your balance sheet to show the "market value" at balance day when reporting to shareholders but as far as the IRD is concerned they want to see your portfolio at cost.

[Xerof]

My understanding is that for a trading company, you account on a cash basis for p/l, assets are recorded at cost, with no revaluations.

genuine request, as about to finalise accounts for my Company (I would be what you call a bush accountant)

OK, so we are back to my original understanding then blackcap, which lines up with what my accountant says.

HS, I guess some will push the boundaries on interpretation as to 'trading stock' or 'inventory' under the Lower of cost or NRV standard

I'll post anything from my accountant later today

[Harvey Specter]

The only problem with this is timing of sales so that if you want to defer tax you have to wait till after balance day before selling or if you want to bring losses forward you need to sell before balance day. If you want to hold onto a loser, but still crystalise the loss, you just need to find a willing participant to bed and breakfast it for you.

[BIRMANBOY]

How do you locate these "willing participants"? If you did it off market looks suspicious if audited and if you do "on market" you cant retract it. Don't understand your methodology. Or are you just being facetious?
If you want to hold onto a loser, but still crystalise the loss, you just need to find a willing participant to bed and breakfast it for you.

[Harvey Specter]

How do you locate these "willing participants"? If you did it off market looks suspicious if audited and if you do "on market" you cant retract it. Don't understand your methodology. Or are you just being facetious?
Probably not suitable for your scale (looks like tax avoidance) but I know it is big overseas. Some funds dont want dividends, some do, so they bed and breakfast their shares on the day before it goes ex-div. No doubt some do it for CGT reasons as well.

[Xerof]

OK, I'm going to go with this (via my accountant's guidance)

From Income Tax Act 2007, section ED 1 is crystal clear, then definition of excepted financial arrangement is also clear

ED 1Valuation of excepted financial arrangements

Valuation methods for excepted financial arrangements(1)A person who has revenue account property that is an excepted financial arrangement must determine the value of the arrangement at the end of each income year at cost.


EW 5What is an excepted financial arrangement?Share or option(13)A share, or an option to acquire or to dispose of shares, is an excepted financial arrangement, if the share is acquired, or the person becomes a party to the option, on or after 20 May 1999.

[Harvey Specter]

Xerof - that looks right. In my comment above, I was mixing up my revenue account property and trading stock.

[nextbigthing]

For those that are interested, I emailed the accountant. As suggested by others, he was happy that if I had two different broking accounts with two different banks then that would be sufficient with no need to use the company.

I shall keep you updated with a picture of the Superyacht I buy, or the bridge end up residing under, depending on how the trading goes :)