Do you own a limited company and wondering about how to manage cash surplus and what possibly can be the smartest way to manage it? In simple words, cash surplus is known as the extra money that goes above the required day-to-day expenses for a limited company.
In case your company faces such a situation where you have a surplus, the first thing your company needs to be clear about is the cash that is required to fulfil the liabilities and daily operations of the company. On the other hand, it is important to understand that you have enough money left after day-to-day operations that can easily be used at the time of paying VAT, corporation tax and PAYE.
In a situation when your business account has extra money, the first move to make is to let it be there in the accounts and use it at the business need hours. The interest earned by this money can also be beneficial in the business future. Before we delve into further discussion, let’s have a look at some prominent ways to manage cash surplus. Some prominent ways include the following:
- High-Interest Company Bond
- Company Pension
- Shares and Stocks
- Director’s Loan
- Gift to Charity
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High-Interest Company Bond:
A very popular way to manage is to keep all the extra amount of money in the high-interest account that your company bond has. If you have a specific time period to tie up the funds, the chances are that you will get a high-interest rate.
Moreover, one thing to keep in mind here is that you can struggle with early withdrawal penalties because you cannot withdraw the money within the agreed time frame.
Most of the limited companies make a pension offer to employees. This pension offer is not only beneficial for the employees but the company becomes national insurance free and get full corporation tax relief as well.
So it is a better idea to make an investment in the pension out of the amount of cash that comes under surplus cash. However, always go for professional advice before you decide to make an investment. This will make you sure about any limitations that might come with the process.
Shares and Stocks:
To avoid the penalties of excessive amounts, surplus cash can be invested in the shares and stock of the company. Here is a serious consideration before you plunge into the shares and stock investment, the risk factor should be in mind.
In case the investment fails, the amount of money should be enough to deal with the loss for the company. However, if the chances are of intense damage that can cause serious consequences for the business, the risk is not worth taking.
Just like all other ways, this move should also be considered with all of its pros and cons. Before we get into further discussion, let’s first know that what is considered a directors’ loan. A director loan is an amount that a director intends to borrow from the company.
In short term, this idea can work well but the limitations that might come in a long run will not be a very suitable option for the company and its functionalities.
The gift to Charity:
The gift to charity from the money of a company is taken as a tax-deductible expense. Moreover, the advice of your company accountant is a must-have to be sure the surplus amount is not needed for the company operational system to work with maximum potential.
This will help to avoid any unfavourable circumstances for the company.
The Bottom Line:
Now that you have developed a better understanding of ways to manage cash surplus, we can sum up the discussion by saying that if you can foresee your company will have cash surplus or have it already, do get in touch for the expert’s advice before making a decision about ways to manage the excessive cash.
We hope this article helped to develop a better understanding of the ways to manage excessive money that your company might have in accounts.
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Disclaimer: This article intends to provide general information based on ways to manage cash surplus for a limited company and relevant details.