Pledge as a Limited Company to help Save The Bell at Pensax
The Save The Bell campaign has so far seen overwhelming support from the Community with 950+ people joining the Facebook site, 380 responses to a survey and many offers of personal and financial support.
A business valuation by industry specialist MJD Hughes Ltd was recently carried out, funded by community donations. This report concluded:
“From information available in the public domain, my investigations and meeting with the Save the Bell, and my experience of over 35 years in the licensed trade it is possible to see there is a sustainable business for the pub.”
We now formed a Community Benefit Society (registered with the Financial Conduct Authority) and raise sufficient funds from the Community to purchase The Bell freehold. Over 160 pubs are currently operating in this way in the UK and to date only one Community Pub has failed.
Can I Purchase Shares in the Community Benefit Society (CBS) to Buy the Pub Through my Limited Company?
The simple answer to this question is yes you can, but it’s important to understand the advantages and other considerations before doing so. There may be better ways for the company to support the project by simply making a gift.
What are the Advantages?
If you want to support the Save the Bell campaign by buying shares, then the immediate advantage of buying shares through your limited company is a personal tax saving. If you were to buy 4 shares (costing a total of £1,000) then as a basic rate taxpayer you would save £87.50, as a higher rate tax payer £337.50 and as an additional rate tax payer £393.50
How is This Tax Saving Achieved?
Assuming you are a Director and shareholder of a Limited Company and you pay yourself through a combination of basic salary and dividends, the tax saving is achieved as follows. The funds used to purchase the shares come from company profits after corporation tax, but before personal dividend or income taxation. In other words, instead of withdrawing money from the company as dividends and paying the relevant rate of dividend taxation (8.75%, 33.75% or 39.35%) and then buying the shares personally, the company uses the net profits to buy the shares instead. As you own the company, indirectly you also own the shares.
If you wish to help save the Bell, it does not matter from the Community Benefit Society’s perspective whether you personally, or your company owns the shares, the money received by the CBS is the same.
What Should I Consider Before I Buy Shares Through my Company?
The main point to realise is that you do not own the shares personally, the company will. The company will appoint a “named signatory” for the shares and this person will have voting rights for the company shares, but they cannot also own shares in their own right personally if this is the case. Company ownership has a number of tax and other implications which are important to understand.
1. Any interest earned on the shares will be declarable as income to the company that owns them and cannot be received by the individual, other than through a salary or dividend payment from the company which would then be subject to personal income or dividend taxation.
2. The shares will be an asset of the company and therefore if the company is sold the new owner of the company will own the shares unless they are repurchased from the company by the CBS. A new owner may not wish to own shares in a CBS and may not appreciate or understand the community aspect of the share ownership.
3. However many shares the company owns, the named signatory will still only have one vote.
4. It may not be possible for the company to purchase shares in a Community Benefit Society, a check of the company’s Memorandum and Articles of Association should be carried out first.
5. Due to the asset lock, the shares will never produce a capital gain, the only financial benefit will be possible interest payments. As such the purchase of shares should not be seen as a serious investment to make money, but as a way of supporting the community project.
6. If the company becomes insolvent and requires the shares in the CBS to be sold, it may be some time before the funds are available and only if there is insufficient liquidity within the CBS to buy the shares back.
Q. Can the cost of the shares bought through the company be treated as trading expense thereby allowing corporation tax relief to be claimed on the purchase price?
A. No. The purchase of the shares will not qualify as a business expense under the “wholly and exclusively” rule.
Q. If the company buys the shares and they are registered in my name will I still benefit from the tax saving?
A. No. If this approach is taken the cost of the shares will deemed to be a form of remuneration from the company and will either be taxed as dividends or be subject to income tax and National Insurance thereby removing any tax saving.
Note: This article does not represent tax or financial advice, we would strongly recommend that prior to making a corporate investment in the CBS to buy shares you should seek advice from your Accountant.
We would prefer to capture your pledges online. Alternatively, please complete the below form and return it to the address on the form or to firstname.lastname@example.org