Contractors who have organized their businesses as limited companies are sometimes faced with the question of what to do with surplus profits. This money can be used to generate further income if it’s treated properly. Gold is sometimes an attractive way to invest this sort of company money.
The “traditional” ways to invest excess profits from a contractor’s business include buying stock or property or depositing the money in an account that delivers decent interest rates. In today’s economic climate, the returns delivered by these investment methods have become much harder to predict than they once were.
Contractors who invest their company money in gold get an opportunity to earn significant returns. While it’s impossible to guarantee future financial pay-outs, the return on gold investment is often significantly greater than that offered by interest-bearing bank accounts.
What Makes Gold A Viable Investment Option
At the time of this writing, the interest rates available on cash deposits are at an all-time low. It would not take much inflation at all to completely wipe out the gains provided by deposit interest, and in such a situation the value of deposited money would actually decrease over time. The worldwide investment markets (e.g. those based on stocks and other financial instruments) are still going through a stormy patch with extremely uncertain returns. This has significantly reduced the appeal of cash deposits as a way to protect and enhance a company’s wealth.
Even some of the very safest options available to contractors for investment, like government bonds, now look less secure than they once were. The odds of national governments defaulting on the debts backed by their bonds have risen significantly in the past decade. Bonds that aren’t tied to significant default risk – those that are safe – deliver frustratingly low returns. Property isn’t looking like a good investment for companies either. The UK housing market remains depressed, and there are no indicators signalling the start of a recovery in the near future.
Thus, the current investment landscape for contractors looks grim. Most of the traditional stores of wealth now offer low or even negative returns. The value of gold is climbing steadily, though. The rising popularity of the metal is due to several factors including its perceived stability and the rising likelihood of gold outperforming other investment options in the current economy.
Ways To Invest In Gold
There are many different ways for contractors to convert surplus profits into gold. Many professionals like to purchase and hold gold physically. Gold coins are a popular option for this route, with UK Sovereigns and South African Krugerrands being particularly common. Gold can also be purchased in bullion form in fractions of 1 ounce of gold or greater amounts.
While storing gold in a safe in one’s home or office is simple, a more secure storage solution is to pay for vault space. Storage costs need to be accounted for when projecting the potential return of gold investments.
Some contractors prefer to forego buying their own gold and instead buy shares in a gold fund. Exchange-traded funds (ETFs) in gold buy and sell the metal on a number of different markets around the world. Shares in a gold ETF are often referred to as “paper gold” by gold investing professionals.
Finally, contractors might want to invest in a more derivative fashion by purchasing shares in companies that mine the metal. In general, higher gold prices equate directly to higher share prices for mining companies that produce the metal. There are also funds that offer investors the ability to invest in multiple mining companies as a hedge against risk.
Getting Started With Gold Investment
Internet buying makes it easy for contractors to buy gold coins or bullion at any time. Coins and bars from reputable sellers can be delivered directly to the buyer. Some contractors prefer to purchase bullion without taking delivery, letting the seller (or an appropriate third party) handle the storage of the metal. Buyers in this situation generally receive certificates of ownership.
Gold ETFs and mining company stock can be traded through the usual investment apparatus used for stock and fund investments. Brokers can be contacted via phone or online and instructed to place purchases and sales according to the contractor’s instructions.
Gold investments made with company money should always be held in the name of the company, not the individual. All gold transactions need to be made through the company.
Limited Companies Investing In Gold And Tax Issues
Any business that sells off an asset at a higher price than that at which it was acquired is subject to capital gains tax. This applies to assets like gold and shares. When the financial year comes to a close, capital gains must be treated as profits. That means the company will need to pay corporation tax on them. Fortunately, capital gains tax charges don’t apply to gold Sovereigns and Britannias issued by the UK government because they are considered to be legal tender.
Gold investments that appreciate in value need to be tracked in the company’s accounts, but there is no tax due until the asset is actually sold. Contractors are strongly encouraged to consult with an accountant to verify that they are meeting all of their tax obligations.
About Financial Health
Gold, like any investment commodity, carries risk along with it. Gold’s value is not regulated by a body like the Financial Services Authority, and there is no guarantee that it will rise in the future. The value of shares in mining corporations and gold funds are likewise subject to volatile fluctuations.
Although gold is hardly a guaranteed investment, it is still an attractive option for contractors who find that it matches their risk profile. Investing surplus company money in gold is a wise choice when the contractor makes use of expert financial guidance.
Cormac Reynolds is a writer and content marketer and has written for a number of the world’s best sites on social media and marketing. You can follow him @brightoncormac