Corporate investing: How to invest cash from your business

Corporate investing is a way to put your business’s surplus cash to good use. Instead of just holding all your cash in the bank, you can put some of it into investments to (hopefully) generate additional revenue.

Sometimes this can even help you reduce your tax obligations.

Here’s your introduction to corporate investing.

What is corporate investing?

Corporate investing is simply investing the profits/surplus cash of your business, instead of drawing it as income or holding it in cash bank accounts.

It’s also a way to withdraw additional money from a company in a tax-efficient way, when it is not intended to be used as income.

Although a business owner can choose to pay themselves in dividends or through a salary, taking too much out of the business to simply sit in your bank account can result in a hefty tax bill.

Conversely, allowing profits to mount up in your business account means this money isn’t actively working for you or the company.

Withdrawing money to place into carefully considered investments can be a savvy decision.

Sometimes, re-investing cash into your business or distributing it among shareholders won’t be appropriate, making corporate investments an attractive option.

What are the advantages of corporate investing?

In recent years, corporation tax, which applies to all profits a business makes and returns on any investments, has risen sharply.

Tax rates for larger businesses increased to 25% in April 2023 from 19%. Smaller companies with profits of less than £50,000 pay a lower rate of 19%, with reliefs available for companies with profits between £50,000 and £250,000.

Investing profits can be an attractive option for owners of smaller companies to reduce their tax bill. While some choose tax-efficient vehicles like pensions for their excess profits, others choose the option of investing through their business.

Some of the other advantages include:

• Diversifying into other securities and assets to give your business multiple revenue streams
• Potentially generating more money that can be reinvested into your business
• Giving your surplus cash a chance to grow rather than leaving it in a savings account with an incredibly low interest rate

What are the disadvantages of corporate investing?

As with all investments, there’s a chance you could lose money – even all of it, though this is an extreme scenario.

Even if you choose to invest in a cautious manner and opt for historically stable securities or assets, you could still lose money if the investment market crashes, or simply fail to achieve the returns of cash.

Therefore, make sure you’ve clearly worked out your appetite for risk before choosing corporate investing. Running a company is of course inherently risky, so most successful CEOs tend to have a healthy understanding and tolerance of risk.

Corporate investing may not be suitable if you need instant access to your cash to bolster cash flow.

You may operate a business that’s seasonal or that doesn’t yet have a steady, consistent stream of clients, meaning tying your money up just isn’t practical.

It’s also not ideal if you’re planning to make significant investments in your business in the near future, for the same reason.

If access to cash is an issue for you, ensure that you retain sufficient funds in easy access accounts before investing any surplus that remains.

It may also be wise not to lock away investments for too long, if you’re worried about cash flow.

What investment vehicles should I consider for corporate investing?

The best investment vehicle will look different depending on a number of factors, including:

• How hands-on you’d like to be with your investments
• The level of returns you’re looking for
• How long you’re happy to invest for
• The sectors you choose to invest in
• Whether you’d like to explore alternative investments or stick to basic financial instruments

Here are just some of the most popular options:

• Funds: There are wide-ranging options like mutual funds (that allow you to invest in a portfolio or bonds, securities and stocks) and sector-specific vehicles like real estate funds.
• Investment trusts: You pool your money with other investors to invest broadly or in a specific sector/area of the market.
• Individual stocks: You could invest directly in another company or a number of companies if you believe they’ve got a bright future ahead.
• Bonds: Government bonds (like premium bonds) are considered a relatively safe investment, but you could also explore corporate bonds if you’re looking for higher returns.
• Commodities: Tangible products, like gold, precious metals or oil.

Although not strictly a corporate investment, it’s also possible to save tax as a business owner by paying more into your own pension through your company.

Employer pension contributions are tax deductible and will reduce your corporation tax bill, though you won’t be able to access your funds until you’re at least 55.

What tax considerations are there when doing corporate investing?

Companies will need to pay corporation tax on income and gains they receive from their investments.

The exact corporation tax payable will depend on what type of asset your business owns and the size of your company.

For example, micro-entities (meeting two of the following criteria - turnover of less than £632,000, 10 or fewer employees and/or a balance sheet total of up to £316,000) will only have to pay tax on investments once they’re ‘realised’ – surrendered at least in part or sold on.

Meanwhile, other companies will be taxed on any ‘basic financial instrument’ (such as stocks, shares, bonds or options and futures contracts) investments once they’re realised.

If a company transfers an investment bond or mutual fund to an employee or director, it could also trigger a tax charge. The gain on any investment will attract corporation tax, and there may also be employers’ national insurance to pay on the transfer.

And if you’re thinking about estate planning when making corporate investments, you’ll need to consider if you qualify for business property relief, which currently allows qualifying business-related assets to be passed down tax-free after two years. 

However, it’s important to take advice because the rules are complex, and business property relief rules are changing. From April 2026, business owners could owe 20% inheritance tax on qualifying assets worth over £1 million.

Do I need professional advice before investing?

As you may have gathered, corporate investing in a way that minimises excessive tax is often complex.

To make sure you maximise the tax-efficiency of your investments and get to hold onto as much of your liquid profits as possible, it’s best to speak to an accountant first.

They can help you work out exactly how much tax you’ll be looking at paying on your revenue and profits.

If you’re not familiar with the world of investments, it’s a smart idea to seek guidance before taking the plunge.

An independent financial adviser can help you gauge your appetite for risk, or how willing you are to lose any money you invest, and how long you’re happy to tie your money up for, before offering impartial advice.

A financial adviser who specialises in advising business owners can get you started with corporate investments. Your accountant may also be able to help.

If you found this article helpful, you might also find our articles on pension vs property investments and venture capital trusts informative, too.