Best Way to Invest in Gold and Silver with a VAT registered Company.

[Ross87]

Hi all, I’m new to precious metals but now looking to invest to hedge against inflation.

I am interested in investing around £5k into silver and £5k into gold, and I’m not too picky about coins or bars if it makes financial sense.

What may be in my favour is that I operate my own limited company which is registered for VAT.

My research has reached the following conclusions, which I wanted to run by the forum:

Silver:

As I have my own VAT registered company. It makes sense to use company funds to buy new silver and reclaim the VAT. As this is through a company, the silver wouldn’t need to be Capital Gains Tax Free so could be bars or coins.

It would then just be a case of what can be bought closest to spot price. Which is probably bars.

I am also thinking to purchase from a reputable dealer that could provide the paperwork for the accountant etc.

Gold:

As gold coins would be VAT and CGT free, it seems to make sense to own this personally. In which case, gold Britannias seem a good place to start and second hand ones probably provide the best value.

 

Conclusion:

·        Buy 1kg silver bars with company funds from a registered dealer

·        Buy second hand gold Britannias privately from this forum

 

Any feedback on my conclusions would be very welcome!

Thanks

Ross

[HonestMoneyGoldSilver]

What you are suggesting is not technically within the spirit of the law. You cannot use your business to buy a personal product to avoid VAT. That's known as tax evasion and may carry severe penalties. Unless of course you wish to expand your business into selling precious metals, then it would be legit. 

"You cannot reclaim VAT you pay on goods and services that are not for business purposes."

Exemption and partial exemption from VAT - GOV.UK (www.gov.uk)

If it were me I would buy and hold physical gold in legal tender form, Britannias or Sovereigns, a mix of the two is optimal (that is what I personally hold)

For defensive investments you should run a 2:1 gold/silver ratio, as advocated by most PM investors. For £10K that would be £6667 gold and £3333 silver

If you prefer volatility, take the reciprocal, i.e. £3333 gold and £6667 silver (at spot prices)

If you want ultimate security just buy gold. If you want to gamble buy silver

Gold is less risky and thus should (in the most general sense) generate smaller returns compared to silver. You can both buy and sell gold at close to spot.

Silver always carries a heavier premium, on TSF it will be 20-30% for bullion coins. Britannias are selling lately for £26-28/coin and spot is £20.20 currently. Many silver bars I've seen lately carry even higher premiums than bullion coins, with premiums in the 50-60% range (e.g. 10 oz silver bars £300-330). The 1kg bars carry lower premiums but a reasonable estimate from recent sales is £725-750 inc ship, spot is £650 (i.e. 11.5-15.4% premium). Premiums on 1kg are lower for a reason. They tend to be uglier and less liquid (harder to sell) than 10 oz bars or 1 oz bullion, with 1 oz bullion being by far the most liquid

Buying from The Royal Mint there is an 8.1% premium for gold (1oz Gold Britannia) and 74.2% premium for Silver Britannias including VAT (45.2% excluding VAT)

In short I would be extremely careful about how you proceed and tailor the risk/reward to suit your needs

 

Edited April 17, 2023 by HonestMoneyGoldSilver

[James32]

I think @HonestMoneyGoldSilver has hit the nail on the head. If it was as easy as you believe, we'd likely all own limited companies. That's not to say it's impossible, but very tricky longterm. 

[Ross87]

Hi honestmoney. Thanks so much for the detailed response.

The VAT situation on the silver is an interesting one. My accountant seemed fairly comfortable with it as long as it just sat in storage as a business investment.

So art on the office wall would be a no go, but a silver bar in a safe would be ok.

As you’ve shown even without paying the VAT it is still almost impossible to get any silver for less than 10% over the spot price!

[Ross87]

Hi @James32, one of the clear rules is that if the investment income exceeds the companies general income, the company gets classed as a ‘close investment company’, which is bad news.

So I guess that would put off casual investors.

Since inflation has gone so high, I’m starting to come across more people using limited companies to hold assets (metals, art, wine etc.)  and get around the VAT.

I’m not a finance professional though. So can’t guarantee this won’t end badly!

 

[HonestMoneyGoldSilver]

23 minutes ago, Ross87 said:

Hi honestmoney. Thanks so much for the detailed response.

The VAT situation on the silver is an interesting one. My accountant seemed fairly comfortable with it as long as it just sat in storage as a business investment.

So art on the office wall would be a no go, but a silver bar in a safe would be ok.

As you’ve shown even without paying the VAT it is still almost impossible to get any silver for less than 10% over the spot price!

You're welcome, I try to be helpful when I can!

I will defer to your accountant, however, as the regulations are written you can only claim back VAT or partial exemption if your business is registered for tax purposes as a precious metals business. Not every accountant is competent. I am only a part-qualified accountant (Master of Finance) but it doesn't appear worth the risk to me over what is a relatively small sum - i.e. if you're following the defensive investor model the VAT on silver would represent roughly 6.7% of your total investment, which is less than the inflation (10.2%) you are trying to ameliorate and significantly less than the recent volatility (~30%) of silver spot price. 

Edited April 17, 2023 by HonestMoneyGoldSilver
typo

[James32]

5 minutes ago, Ross87 said:

Hi @James32, one of the clear rules is that if the investment income exceeds the companies general income, the company gets classed as a ‘close investment company’, which is bad news.

So I guess that would put off casual investors.

Since inflation has gone so high, I’m starting to come across more people using limited companies to hold assets (metals, art, wine etc.)  and get around the VAT.

I’m not a finance professional though. So can’t guarantee this won’t end badly!

 

You can get kilo bars on here for roughly 10-12% often, can dealers beat that even if vat free?

[HonestMoneyGoldSilver]

31 minutes ago, Ross87 said:

As you’ve shown even without paying the VAT it is still almost impossible to get any silver for less than 10% over the spot price!

I wouldn't say that, all you have to do is own paper silver (SLV) and cash out 100,000 ounces (£2.022 million). Now having a spare £2 million invested in paper silver, that's the real problem!

[dicker]

This has been discussed a number of times before - worth a search.

I investigated this years ago - certainly not worth it for me.  Plus…I certainly didn’t want PM’s disclosed on my balance sheet in the annual report…for obvious reasons.  

[Spyder]

If you want to buy silver at spot, then buy and hold through Bullionvault.com. I have held and traded silver there for years. Easiest way to make money on silver when it is rising. Just like buying shares. Difference with a share, it can go to nothing. If you buy 10kg of silver regardless of what the silver price does, you still own 10kg of silver.

Of cause you can also buy gold there.

[Arisian]

Another vote for Bullionvault. Massive liquidity. Allocated gold and silver. There is 3rd party risk but I think Bullionvault is as good as it gets.

[Ross87]

On 17/04/2023 at 19:24, James32 said:

You can get kilo bars on here for roughly 10-12% often, can dealers beat that even if vat free?

Even VAT free, I am looking at 15% over spot through a dealer like Chards.

So I'm not sure it's worth the risk and complications of buying through a limited company.

It would be nice to hold the physical silver, but something like bullionvault looks the way to go.

Incidentally who is pocketing all these premiums on silver? I don't see why dealers would need to charge so much more than for gold.

 

[MBTPSilver]

18 hours ago, Ross87 said:

Incidentally who is pocketing all these premiums on silver? I don't see why dealers would need to charge so much more than for gold.

 

Can be a mixture of things.
- It's bigger than the equivalent weight of gold so costs more to store.
- Usually more expensive to post, again due to much higher weights and larger sizes being posted.
- Fixed costs have a much higher impact on a lower priced metal which people always seem to forget with silver.
- Most dealers pay more to buy silver back in, say 97% of spot for gold, but 100 - 105% for silver.
- The silver price moves around a lot quicker so they have to probably hedge much higher to outweigh the risk of a big drop in silver price.
- Lastly to my mind, higher demand, more people want cheap silver which means they can charge a higher % for it, it's a commodity after all so ultimately drive by supply & demand.

Edited April 19, 2023 by MBTPSilver
Typo corrections.

[sovereignsteve]

On 17/04/2023 at 17:30, Ross87 said:

Silver:

As I have my own VAT registered company. It makes sense to use company funds to buy new silver and reclaim the VAT

I don't see what difference it would make, unless you can somehow transfer the ownership to yourself and not charge VAT when you come to sell. Otherwise you pay VAT back to the Gov when you sell and still make the same % profit as you would have if you'd paid VAT as a private individual.

eg

Price paid £120  claim £20 vat back  net price paid £100  (equates to buying and selling at a reference price + VAT, in this case £100)

Sell at £240   pay £40 vat to HM Revenue   net price received  £200   (reference price increases 100% to £200)

Silver price increase 100%

you make 100% profit whichever way you do it.

 

Or am I being too simplistic, I am not an accountant?

 

[HonestMoneyGoldSilver]

The cost of minting a coin can help visualise why retail premiums are significantly higher on silver than gold:

Authorized Purchaser Program | U.S. Mint (usmint.gov)

Cost of minting 1oz AGE: ~$60 (it's officially 3% of spot according to the US Mint)

Gold spot worth of AGE:- ~$2,000

Mint/Spot= (60/2000)*100 = 3%

Cost of minting 1oz ASE: ~$2.50 (US Mint sells to wholesales at spot + $2.35 on ASEs but figures are from 2022, may be higher than $2.50 today)

Silver spot worth of ASE: ~$25

Mint/Spot = (2.50/25)*100 = 10%

So it costs more than 3 times as much to mint a silver coin as a gold coin, relative to spot prices. That's just one factor on top of those mentioned by @MBTPSilver. All of these combined explain why The Royal Mint charges roughly 8% premium on gold and 45% on silver (excluding VAT). The VAT then sends things into lala land for silver, it's unfair we have to pay VAT on legal tender. (Arkansas abolished Sales Tax and CGT on precious metals recently, other US states are set to follow)

[Arisian]

 

1 hour ago, HonestMoneyGoldSilver said:

The cost of minting a coin can help visualise why retail premiums are significantly higher on silver than gold:

Authorized Purchaser Program | U.S. Mint (usmint.gov)

Cost of minting 1oz AGE: ~$60 (it's officially 3% of spot according to the US Mint)

Gold spot worth of AGE:- ~$2,000

Mint/Spot= (60/2000)*100 = 3%

Cost of minting 1oz ASE: ~$2.50 (US Mint sells to wholesales at spot + $2.35 on ASEs but figures are from 2022, may be higher than $2.50 today)

Silver spot worth of ASE: ~$25

Mint/Spot = (2.50/25)*100 = 10%

So it costs more than 3 times as much to mint a silver coin as a gold coin, relative to spot prices. That's just one factor on top of those mentioned by @MBTPSilver. All of these combined explain why The Royal Mint charges roughly 8% premium on gold and 45% on silver (excluding VAT). The VAT then sends things into lala land for silver, it's unfair we have to pay VAT on legal tender. (Arkansas abolished Sales Tax and CGT on precious metals recently, other US states are set to follow)

All In Sustaining Cost of mining Gold is circa $1200 and Silver is $17, that obviously varies from mine to mine but it's a pretty good industry average.

https://www.gold.org/goldhub/gold-focus/2023/04/gold-miners-costs-reached-record-high-2022-dropped-final-quarter-year

 

SORRY ERROR IN READING I SAW MINTING AS MINING - Just IGNORE! :-)

Edited April 19, 2023 by Arisian
Newer info

[HonestMoneyGoldSilver]

@Arisian - I've been banging on about AISC since my first post on TSF: 

I believe the current average AISC for the major silver mines is $18/oz and that this floor is currently rising

1. Pan American Silver Corp (PAAS, Canada, Latin America) - $17.97/oz (+ 10% YoY)
2. SSR Mining Corp (SSRM, Turkey) - $15.91/oz (+29% YoY)
3. Hecla Mining Company (HL, United States) - $14.20/oz (+11% YoY)
4. Fortuna Silver Mines Inc (FVI, Canada, Latin America, Burkina Faso) - $14.46/oz (-8.8% YoY)
5. Endeavour Silver Corp (EXK, Mexico) - $20.27/oz (+16% YoY)

Average AISC for those companies (Q3 2022) is $16.56. It seems obvious that as AISC goes up (which is the way it's trending with inflation, energy, labour, finance, ESG, etc) or down, that this would correlate strongly with the spot price of these metals, although this relationship is perhaps not as robust as one might expect. Regardless, if the spot price goes below the AISC, the mines will reduce or stop production as you can't run a business indefinitely that is unsustainable/unprofitable. It is my hypothesis that the absolute bottom of the market for silver was/is $18/oz and that it's unlikely to remain below $20/oz never mind $18

[Arisian]

1 minute ago, HonestMoneyGoldSilver said:

@Arisian - I've been banging on about AISC since my first post on TSF: 

I believe the current average AISC for the major silver mines is $18/oz and that this floor is currently rising

1. Pan American Silver Corp (PAAS, Canada, Latin America) - $17.97/oz (+ 10% YoY)
2. SSR Mining Corp (SSRM, Turkey) - $15.91/oz (+29% YoY)
3. Hecla Mining Company (HL, United States) - $14.20/oz (+11% YoY)
4. Fortuna Silver Mines Inc (FVI, Canada, Latin America, Burkina Faso) - $14.46/oz (-8.8% YoY)
5. Endeavour Silver Corp (EXK, Mexico) - $20.27/oz (+16% YoY)

Average AISC for those companies (Q3 2022) is $16.56. It seems obvious that as AISC goes up (which is the way it's trending with inflation, energy, labour, finance, ESG, etc) or down, that this would correlate strongly with the spot price of these metals, although this relationship is perhaps not as robust as one might expect. Regardless, if the spot price goes below the AISC, the mines will reduce or stop production as you can't run a business indefinitely that is unsustainable/unprofitable. It is my hypothesis that the absolute bottom of the market for silver was/is $18/oz and that it's unlikely to remain below $20/oz never mind $18

I would agree with everything you said, it could dip below$18, but once productions stops it'll rebound pretty quickly.

[Ross87]

On 17/04/2023 at 19:52, Spyder said:

If you want to buy silver at spot, then buy and hold through Bullionvault.com. I have held and traded silver there for years. Easiest way to make money on silver when it is rising. Just like buying shares. Difference with a share, it can go to nothing. If you buy 10kg of silver regardless of what the silver price does, you still own 10kg of silver.

Of cause you can also buy gold there.

Thanks for this Spyder. I gave Bullionvault a go today and it was generally a positive experience. It's very easy to trade on there.

Playing around on the app, they seem to have quite a serious referral scheme if anyone fancies some affiliate marketing or getting a code from the forum.
https://www.bullionvault.co.uk/help/referral_programme.html

I haven't actually withdrawn anything yet, so can't 100% guarantee it's not a scam. But seems legit so far.

 

[ArgentSmith]

If you hold Silver as an asset on your VAT registered company balance sheet don't you have to apply VAT when you dispose of it?

[Ross87]

1 hour ago, ArgentSmith said:

If you hold Silver as an asset on your VAT registered company balance sheet don't you have to apply VAT when you dispose of it?

I'm not an accountant. But my impression is VAT is only paid by the end consumer (that isn't VAT registered).

My plan was to use my VAT registered company to purchase from the VAT registered dealer.

Then I was intending to only sell back to a VAT registered dealer (at spot price). I think if I sold to a person (not VAT registered) that would be a problem.

The lady at Chards seemed to suggest what I was doing was fine and happens fairly regularly. (They had a form etc.)

Once I have sold it back, the dealer would then end up with "used silver" that has never had the VAT paid. So VAT may need to be paid on it further down the line.

 

I believe this situation comes up when purchasing second hand vans, where you have to ask if the VAT has been paid or not because previous owners may have swerved it.

 

I thought this plan would give me some significant savings. However the best price I can get from a dealer without paying VAT is still about 15% over spot. Which seems to be beatable buying through this forum.
The BullionVault option offered some very tight spreads so I thought that made the best financial sense. Although I am sad I don't have loads of bars stacked in my home office like some sort of low rent bond villain.

 

[Ross87]

On 18/04/2023 at 14:37, Arisian said:

Another vote for Bullionvault. Massive liquidity. Allocated gold and silver. There is 3rd party risk but I think Bullionvault is as good as it gets.

Thanks for this. I finally cashed out for a small profit after a few months and it worked very well. Got a bit confused between kg and oz at one point but probably my own fault.