Are small businesses bank accounts protected, or is it just individuals?
What if you’ve built up higher than normal cash balances to pay VAT or corporation tax?
Successful and prudent companies may wish to put sufficient money aside out of their profits to pay the corporation tax when it comes due. These funds are generally kept in a corporate deposit account with the company's bank, but the interest rates paid on those accounts can be quite low.
Client directors may be unclear as to whether the company's bank accounts are covered by the Financial Services Compensation Scheme (FSCS), which now covers the first £50,000 of deposits per bank. Some directors are asking whether they should pay the CT due to HMRC early, so at least the money is safe and it will earn interest as an over-payment of tax, for the period before the due date.
Let's deal with the first point of compensation for corporate bank deposits. The FSCS guidance says:
FSCS was set up mainly to assist private individuals, although some smaller businesses are also covered. Larger businesses are generally excluded, although there are some exceptions to this (for example for claims in respect of certain compulsory insurances). Which claims are eligible form part of the FSA's Handbook of rules and guidance, under Redress, Compensation.
As an indicative guide only, for the purposes of deposit and investment claims, smaller companies are protected. A smaller company must meet two of the following criteria:
- Turnover: not more than £6.5 million
- Balance sheet total: not more than £3.26 million
- Total number of employees: not more than 50
The same levels of compensation apply whether the claimant is a private individual, small business, or a small company.
So it is clear that the bank accounts of small companies and small business are covered by the compensation scheme. Larger companies have to take the risk their bank will not fold, but the UK Government does appear to be supporting the UK banks.
Amazingly HMRC appear not to want to take CT payments early from small companies who are not required to pay their CT by instalments. If the company pays the tax due by cheque more than 30 days before the due date HMRC will return the cheque. Where a payment is made electronically using the correct reference on the CT payslip for the year it may take rather longer to return the funds, as they are received automatically into HMRC's account with the Bank of England. In the meantime those funds should earn interest at 2.75%
Guidance on compensation for small business accounts
http://www.fscs.org.uk/consumer/Latest_News/
HMRC interest rates on tax overpayments
http://www.hmrc.gov.uk/rates/interest-repayments.htm#ct
general tax and investment advice
www.mcleanreid.co.uk www.championifa.co.uk
The above point is taken from the weekly newsletter issued by the Tax Advice Network (www.taxadvicenetwork.co.uk) with their permission.
