Silver and limited companies - cunning plan or red herring?

[Silverlocks]

So, according to t'interwebs one can buy, own and sell gold through a limited company to one's heart's delight.  Now, being a contractor by trade, I just happen to have a limited company lying about. So -

Has anybody here actually done this with Silver?  Presumably one could claim VAT back but would be obliged to charge the VAT back on sales.  Are there any other gotchas?

@LawrenceChard - I have a specific question that you might well know the answer to.  If one were to flog some sliver to a dealer from a limited company, the company would have to charge the VAT.  How does this work from your end?

@ChrisSilver - If one were to flog some silver held by a limited company (which is not primarily in the business of trading precious metals), would it be abusing the rules to do this as a personal seller through this forum?  

Given that I don't see people talking about holding silver in a limited company here, I presume it's not common practice.  I can see it having some benefits in deferring tax on the purchases, but little benefit otherwise.  On the other hand, is there some other gotcha to doing this that I haven't picked up on here?

I do appreciate that this is not financial advice and I may well schedule a confabulation with my accountant about the matter, but I was wondering if any of the folks here have experience with this or could otherwise offer some insights into it.

Edited September 11, 2022 by Silverlocks

[BackyardBullion]

If your company is VAT registered you can certainly claim the VAT back when buying stock, ie. Silver.

You have to then charge VAT when selling that silver. That includes selling here on the forum.

If you bought the silver VAT free and then took the silver out of the business for yourself you have to account for this on the companies book keeping appropriately and deal with the VAT liability.

There is not really a way to dodge VAT like this. If you do then there is a good chance you are commiting VAT fraud.

I'm not an accountant or VAT expert, but that's my opinion.

[BackyardBullion]

The only exception would be buying silver, claiming the VAT back and then selling it to a VAT registered business like a dealer. 

You would either zero rate the sale or if you collect VAT then both your company and the company that buys would do your normal VAT returns to balance it out.

You would then have to declare any profits on your book keeping and pay corporation tax and then extract the money from the business and you then pay either income tax or dividend tax.

By all accounts I think you would be massively worse off than just buying as a private individual, paying the VAT then selling as a capital asset. No income tax to pay, no corporation tax to pay.

I think there is a reason why this is not done very often as a ltd company.

[modofantasma]

7 hours ago, Silverlocks said:

Given that I don't see people talking about holding silver in a limited company here, I presume it's not common practice.  I can see it having some benefits in deferring tax on the purchases, but little benefit otherwise.  On the other hand, is there some other gotcha to doing this that I haven't picked up on here?

I've considered it as an option but doesn't seem viable. Have you considered another 'tactic' of buying a place and being a resident in a European country, buy it there and leave it there 😎

[BackyardBullion]

The Maths

Ltd company buys £100,000 worth of silver. You save £20,000 in VAT.

Spot price goes up and you sell.

You sell your silver to a dealer for £125,000 (zero rated VAT)

Your company makes £25,000 profit. You pay 19% corporation tax, £4750 leaving you with £20,250

You take this £20,250 as a dividend and assuming you are a lower rate tax payer and you have had no other dividends you pay dividend tax on £18,250 which is £1368.75

This means you have extracted £18,881 from the business as profit.

This calculation excludes all the other costs that might be involved like quarterly VAT returns, annual accounts and other professional fees required.

If you bought £100,000 for yourself as a private individual then you pay £120,000 for it.

In the above example we assume here that we can achieve the same +£25,000 profit by selling at a higher price to individuals and not selling to dealers where you achieve lower prices. More work, but nothing is free in this world.

Assuming you bought Britannias then that £25k is just pure profit. No Capital gains tax to pay, just profit.

You can see that there is a margin here, you extracted £18800 in the LTD company so you could sell your britannias for less and still end up with more money.

Big difference, you have to stump up more cash up front because you are paying the VAT.

[Silverlocks]

3 hours ago, BackyardBullion said:

The only exception would be buying silver, claiming the VAT back and then selling it to a VAT registered business like a dealer. 

You would either zero rate the sale or if you collect VAT then both your company and the company that buys would do your normal VAT returns to balance it out.

You would then have to declare any profits on your book keeping and pay corporation tax and then extract the money from the business and you then pay either income tax or dividend tax.

By all accounts I think you would be massively worse off than just buying as a private individual, paying the VAT then selling as a capital asset. No income tax to pay, no corporation tax to pay.

I think there is a reason why this is not done very often as a ltd company.

 

I think in this scenario you're paying for the silver with money upstream of corporation tax and self-assessment tax, although if you take the funds out of the company you'll get clobbered for that so it sort of evens out.  The exception to this is (I think) winding up the company and liquidating the assets through a members voluntary liquidation (IIRC this is what it's called), in which case you pay a reduced rate of capital gains tax on assets (i.e. cash from the sales) retained within the business.  This latter case isn't all that unreasonable as it's something that can happen if you quit contracting to go perm or retire and wind up the company. 

If that happens you liquidate the investments, take the money out of the company through MVL, pay the 10% CGT and either re-invest it or spend it on blow and hookers.  I'm not 100% sure if HMRC will actually see it that way, but the conventional wisdom in contracting circles is that they will wear it as long as you don't take the piss by winding companies up every two years.

It's pretty common practice (as I understand) for contractors to run investments through their company on the assumption that the 10% CGT from a MVL is better value than paying for the investments downstream of self-assessment tax.  I've also seen references to folks stacking gold held by their companies, so it might work.  From what I can tell, you still have to have a primary income stream greater than your investment income, or the company becomes classed as an investment vehicle and attracts a higher rate of CGT.  Having this much investment income while still working would be a very nice problem to have, but I think it becomes an issue if you stop working without winding up the company.

I also can't see a clear answer on the interwebs as to whether the £11,000 hail mary on CGT you get as an individual also applies to CGT on assets held by a company.

 

[Silverlocks]

Hm.  According to HMRC a company doesn't pay capital gains tax but pays corporation tax on the profits of a sale of assets.  If you re-invest you can claim the investments against corporation tax.

https://www.gov.uk/tax-when-your-company-sells-assets

[BackyardBullion]

By the sounds of it any gains you make by saving the 20% VAT are entirely written off by the 19% corporation tax, accountant fees, taxing cash out the company via dividends etc.

[Silverlocks]

15 hours ago, BackyardBullion said:

By the sounds of it any gains you make by saving the 20% VAT are entirely written off by the 19% corporation tax, accountant fees, taxing cash out the company via dividends etc.

If you buy silver privately you're buying it with money you've paid corporation tax and self-assessment tax on - and paying VAT on the sale if it's chargeable.  If you're buying it through the company you have to charge VAT on the sale, pay corporation tax and self assessment tax on any proceeds of the sale you take from the company, so it evens out, although you do get to defer some of the tax.

Edit: It looks like the investment doesn't come off corporation tax; you only gain on not paying self-assessment tax moving money out of the company.

I think the only scenario in which you gain from this is MVL, which is a reasonable approach if you're doing this as a retirement fund - and could also be done with gold or other assets such as shares or index funds. 

 

Edited September 12, 2022 by Silverlocks

[LawrenceChard]

9 hours ago, Silverlocks said:

So, according to t'interwebs one can buy, own and sell gold through a limited company to one's heart's delight.  Now, being a contractor by trade, I just happen to have a limited company lying about. So -

Has anybody here actually done this with Silver?  Presumably one could claim VAT back but would be obliged to charge the VAT back on sales.  Are there any other gotchas?

@LawrenceChard - I have a specific question that you might well know the answer to.  If one were to flog some sliver to a dealer from a limited company, the company would have to charge the VAT.  How does this work from your end?

@ChrisSilver - If one were to flog some silver held by a limited company (which is not primarily in the business of trading precious metals), would it be abusing the rules to do this as a personal seller through this forum?  

Given that I don't see people talking about holding silver in a limited company here, I presume it's not common practice.  I can see it having some benefits in deferring tax on the purchases, but little benefit otherwise.  On the other hand, is there some other gotcha to doing this that I haven't picked up on here?

I do appreciate that this is not financial advice and I may well schedule a confabulation with my accountant about the matter, but I was wondering if any of the folks here have experience with this or could otherwise offer some insights into it.

It does happen, but it tends to be done for larger volumes rather than smaller ones. So while private individuals might buy from 1 coin to 1 monster box of silver Britannias for example, sales to or via VAT registered companies tend to be from 1,000 coins to 10 or more monster boxes.

In the past year or so, it seems to have become much more common for people to buy precious metals, including gold and not just silver, through their businesses.

While we have not delved into the reasons in great depth, or checked with our accountants, it seems that there could be a number of advantages, including tax efficiency, through legal avoidance or mitigation, rather than evasion, of tax.

First, if an indiviidual buys percious metal, including gold, through his company, he can do so using the companies money including profits, which will only have been taxed at Corporaton tax rates. If buying as a private individual, he or she would have, presumably, paid income tax, and almost certainly at higher rates. The disadvantage is that when taking a profit, if the individual wants to receive the profits, they may have to pay a higher total rate, but at least they will have benefitted by deferring the tax, possibly for years or even decades.

It is not tax efficient to pay tax on investments at the front end, as that would mean less is invested. Even when the company liquidates the investment, although it will pay or account for tax on profits, the individual can defer his own personal tax on them by lelalving the profits in the company until he requires the income. Until then, he will not be liable for income tax on the profits, and this can be spread over a number of years, possibly avoiding higher tax bands. The income could also be taken as dividends rather than salary. Obviously there is probably a need to consult accountants or tax accountants before starting out, and the calculations may get quite complex. I don't even know if companies are liable for capital gains tax, and if so, whether it might be beneficial, but I'm not an accountant. In effect, the investment can work like a pension scheme. The company may also have secure storage facilities, and will be covering insurance costs or risks.

 

The OP specifically mentioned silver, because of the VAT element, although of course this would also apply to platinum, palladium, and many other things.

Now there is a clearer advantage, because a VAT registered company can reclaim the VAT, meaning more money goes into the investment, and less in tax, at the front end.

The downside is that when the company sells, it has to charge and pay VAT on the disposal. Its buyer gets charged VAT. HMRC are not deprived of any revenue, at least on the assumption that there is no fraud or false accounting.

If the end buyer is a VAT registered dealer, it can then reclaim the input VAT, but still has to charge and account for output VAT when it, in turn, sells.

At this point, there is a difference for the "final" dealer, because although these coins are "pre-owned" or "secondary market", they cannot be accounted for under the "special scheme" for  normal second-hand goods. the special scheme means the dealer only has to account for VAT on his margin. Buying from a VAT registered source, the dealer has to charge and account for the full VAT on them. this leaves the dealer with only a thin potential profit. Most collectors, stacker and investors expect to pay less for secondhand coins than for new ones. Additionally, silver coins may have now tarnished, or developed the dreaded milk spotting. The dealer's downside risk is still almost as high as for new silver bulllion coins, so the risk / reward ratio is less favourable.

A further point to consider, is that the dealer will need to run a third VAT status category. In addition to new VATable coins, and secondhand special scheme coins, it now has to have secondhand but VATable coins. This complicates accounting as this third category may need to be stored separately, and will need to be accounted for separately for VAT purposes. Not all dealers will be happy to have to do this. It requires extra staff training and extra care. And less profit!

Most dealers prefer trading secondhand coins under the spepcial scheme, as although it entails more accounting and recording work, there is a slightly lower downside risk, and a higher profit potential. Even so, some of the biggest bullion dealers, including some banks, choose not to operate a special margin scheme, because of the extra accounting work.

For the dealer, paying out input VAT to a new supplier also entails more work, as it needs to carry out some due diligence work to ensure the company it is buying from is indeed VAT registered, and is not likely to disappear or go into liquidation leaving its output VAT bill unpaid. In these cases, the dealer can be held responsible for HMRC's loss. or some under suspicion of collusion, conspiracy to defraud, and simply negligence in failing its due diligence, with associated record keeping.

It helps if the dealer was the original supplier to the company, as there can be more confidence that everything is legitimate, but this still does not remove the requirement to carry out due diligence checks.

One other possible advantage of buying silver through your own company could be if there was any future reduction in VAT, including temporary reductions. Another might be if it exported it, when the VAT would be zero rated.

I think I have covered most aspects, although there is bound to be something I have missed.

😎

[LawrenceChard]

4 hours ago, modofantasma said:

I've considered it as an option but doesn't seem viable. Have you considered another 'tactic' of buying a place and being a resident in a European country, buy it there and leave it there 😎

There is VAT on silver in all or most EU member states, although there are some clever or dodgy import margin schemes, so there is probably not much advantage.

Guernsey is an exception, as it has no VAT, but have you seen the price of property in Guernsey?

😎

Edited September 11, 2022 by LawrenceChard

[Silverlocks]

3 minutes ago, LawrenceChard said:

[ . . . ]

I don't even know if companies are liable for capital gains tax, and if so, whether it might be beneficial,

That is a jolly good question.  From what I can tell companies pay corporation tax on the profits of the sale, rather than capital gains tax.  However, I too am not an accountant and just go by what I can find on the interwebs.

[LawrenceChard]

44 minutes ago, Silverlocks said:

 

I think in this scenario you're paying for the silver with money upstream of corporation tax and self-assessment tax, although if you take the funds out of the company you'll get clobbered for that so it sort of evens out.  The exception to this is (I think) winding up the company and liquidating the assets through a members voluntary liquidation (IIRC this is what it's called), in which case you pay a reduced rate of capital gains tax on assets (i.e. cash from the sales) retained within the business.  This latter case isn't all that unreasonable as it's something that can happen if you quit contracting to go perm or retire and wind up the company. 

If that happens you liquidate the investments, take the money out of the company through MVL, pay the 10% CGT and either re-invest it or spend it on blow and hookers.  I'm not 100% sure if HMRC will actually see it that way, but the conventional wisdom in contracting circles is that they will wear it as long as you don't take the piss by winding companies up every two years.

It's pretty common practice (as I understand) for contractors to run investments through their company on the assumption that the 10% CGT from a MVL is better value than paying for the investments downstream of self-assessment tax.  I've also seen references to folks stacking gold held by their companies, so it might work.  From what I can tell, you still have to have a primary income stream greater than your investment income, or the company becomes classed as an investment vehicle and attracts a higher rate of CGT.  Having this much investment income while still working would be a very nice problem to have, but I think it becomes an issue if you stop working without winding up the company.

I also can't see a clear answer on the interwebs as to whether the £11,000 hail mary on CGT you get as an individual also applies to CGT on assets held by a company.

 

Some of that sounds slightly dodgy.

Is it OK to wind companies up every three instead of two years? 😎

If buying silver coins, it makes sense for UK individuals to buy Britanias or other British coins, as they are CGT exempt, rather than foreign coins or silver bars.

Premiums on most Britannias are nowadays similar to most other silver bullion coins, and less than some.

[Silverlocks]

11 minutes ago, LawrenceChard said:

Some of that sounds slightly dodgy.

Is it OK to wind companies up every three instead of two years? 😎

If buying silver coins, it makes sense for UK individuals to buy Britanias or other British coins, as they are CGT exempt, rather than foreign coins or silver bars.

Premiums on most Britannias are nowadays similar to most other silver bullion coins, and less than some.

It is and isn't slightly dodgy.  As a process of winding up a company in which you're the sole shareholder and the company has significant assets (which could just be money earned from a contracting business and retained within the company), this is apparently legit.  However, some folks have been known to take the piss and wind companies up every year or two as a tax dodge to avoid paying tax on dividends.

I think HMRC tend to look askew at folks who overdo it but it is a thing in contracting circles.  I don't know what the trigger point is, but as I understand HMRC's methodology is something like:

1. Pick an industry
2. Look at the practitioners paying the lowest rate of tax, on the assumption that they're probably bending the rules somewhere.
3. Shake them down, starting at the lowest rate and going until it's time to move onto the next industry.
4. Move to the next industry
5. Repeat.

I guess you would get on their radar if your average tax rate over the years was too low, or maybe if you hit other triggers like winging up too many companies.

Edited September 11, 2022 by Silverlocks

[Silverlocks]

4 hours ago, modofantasma said:

I've considered it as an option but doesn't seem viable. Have you considered another 'tactic' of buying a place and being a resident in a European country, buy it there and leave it there 😎

Unfortunately, for better or worse, I'm not really in a position to do this as the (somewhat specialised) nature of my work really ties me to London.  My business needs to remain domiciled in the UK, and I'm not eligible for citizenship in another European country, especially post-Brexit.  Taking a perm job in (say) Germany would mean a big hit on my income and probably not worth it for any tax advantages on stacking silver.

Now, doing the digital nomad thing and running a spread betting operation from somewhere in central Java - that could be tempting.

Edited September 11, 2022 by Silverlocks

[Pete]

2 hours ago, LawrenceChard said:

There is VAT on silver in all or most EU member states, although there are some clever or dodgy import margin schemes, so there is probably not much advantage.

Guernsey is an exception, as it has no VAT, but have you seen the price of property in Guernsey?

😎

If Guernsey is the same as Jersey we Brits cannot purchase property in the Channel Islands unless you have been resident there for at least 10 years.
Seems a pretty good rule to me and maybe a rule that would save some parts of the UK where holiday homes bought by property rich Londoners mainly, are killing the desirable coastal communities.
Properties are expensive in the Channel Islands but there is no inheritance tax.

[Bigmarc]

I often wondered what happens to scrap material when making something. Let's say I go into the business on engraving silver pendants and plaques. Every now and the there must be a mistake which would render it unsaleable. When weighing it in at the local cash for silver man/woman, do you charge them vat? Or is the vat written off and added to my private collection? 

 

[sixgun]

On 11/09/2022 at 15:37, Pete said:

If Guernsey is the same as Jersey we Brits cannot purchase property in the Channel Islands unless you have been resident there for at least 10 years.
Seems a pretty good rule to me and maybe a rule that would save some parts of the UK where holiday homes bought by property rich Londoners mainly, are killing the desirable coastal communities.
Properties are expensive in the Channel Islands but there is no inheritance tax.

Guernsey has no VAT - Jersey has 5% standard rate.

As a UK citizen you can just go to Guernsey and buy open market property. There is an open market and local market for property on Guernsey - local market tends to be cheaper but having looked at the property market there i don't think there is a shortage of open market property anyone entitled to live in Guernsey can buy. As you point out the rules are a lot tighter on Jersey and property is expensive. It's my aim to go live in the Channel Islands when the time is right.

[HerefordBullyun]

Ive been following this thread with some interest. 

Dont you have to have a certain annual turnover of 70k also to claim VAT back as a business or was i just dreaming this?

[Bigmarc]

27 minutes ago, HerefordBullyun said:

Ive been following this thread with some interest. 

Dont you have to have a certain annual turnover of 70k also to claim VAT back as a business or was i just dreaming this?

I think if you turn over 70k or more you "must" be vat registered. 

[HerefordBullyun]

1 minute ago, Bigmarc said:

I think if you turn over 70k or more you "must" be vat registered. 

Ok whats the difference? Is it that you can claim VAT back regardless but if you turn over 70k - you are required by law to be registered?

[Bigmarc]

4 minutes ago, HerefordBullyun said:

Ok whats the difference? Is it that you can claim VAT back regardless but if you turn over 70k - you are required by law to be registered?

If you turn over 70k (maybe 80k) a year then you are required by law to register your business and start charging and claiming vat back (basically an unofficial tax collector). But I think at any point up to 70k it is up to you weather to register or not. I buy silver from a couple of people who basically run up to the 70k mark then stop for the year so not to cross the threshold. It's an added admin cost that small businessess may or may not want. 

I think this is right, it's been a few years but now the kids are growing up a bit I may dip my toe in again. 

[HerefordBullyun]

1 minute ago, Bigmarc said:

If you turn over 70k (maybe 80k) a year then you are required by law to register your business and start charging and claiming vat back (basically an unofficial tax collector). But I think at any point up to 70k it is up to you weather to register or not. I buy silver from a couple of people who basically run up to the 70k mark then stop for the year so not to cross the threshold. It's an added admin cost that small businessess may or may not want. 

I think this is right, it's been a few years but now the kids are growing up a bit I may dip my toe in again. 

Thanks for ratifying @Bigmarc appreciated top man!

[HerefordBullyun]

7 minutes ago, Bigmarc said:

If you turn over 70k (maybe 80k) a year then you are required by law to register your business and start charging and claiming vat back (basically an unofficial tax collector). But I think at any point up to 70k it is up to you weather to register or not. I buy silver from a couple of people who basically run up to the 70k mark then stop for the year so not to cross the threshold. It's an added admin cost that small businessess may or may not want. 

I think this is right, it's been a few years but now the kids are growing up a bit I may dip my toe in again. 

85k now, ive just checked, but the website is old so I stand to be corrected. Im sure @LawrenceChard knows the threshold as he would with his annual turnover of Chinas gold holdings!

[Bigmarc]

Just now, HerefordBullyun said:

85k now, ive just checked, but the website is old so I stand to be corrected. Im sure @LawrenceChard knows the threshold as he would with his annual turnover of Chinas gold holdings!

I should imagine he has minions that do that for him.