Crypto & Investments via Your Limited Company
These days it’s common for clients to put their surplus business funds to work. There are numerous trading platforms that can be used, which makes buying crypto, ETFs, stocks & shares so much easier. Of course, investing company funds comes with its own risks (and rewards) but today I wanted to take a look at how these investments get taxed when invested through a freelancer’s limited company.
Mel moved over from Adelaide three years ago and now contracts as a product designer through her own UK limited company. Like a lot of Kiwis and Aussies abroad, she's got a bit of cash sitting in the company that isn't doing much, so last year she put some of it into Bitcoin through Coinbase Business.
This year she got curious about Ethereum. So she swapped a chunk of her Bitcoin for ETH, all inside the same exchange. No money came out. Nothing landed in the company bank account. As far as Mel was concerned, she hadn't really done anything - just rearranged things on the platform.
Then she had a chat with us about her year-end accounts.
The swap was a disposal. The Bitcoin had gone up in value since she bought it. There was a chargeable gain to report, and corporation tax to pay on it - even though not a single pound had moved into the company's bank account.
Mel's reaction was the one we hear a lot: "But I haven't actually sold anything. The money's still in there."
This blog is about why that instinct is wrong, and what the rules actually say about when a tax bill arrives on company investments.
Why this matters
Investing through a limited company has become a lot more common over the last few years. Contractors with idle cash on the balance sheet, freelancers wondering whether to dabble in crypto, professionals running stocks and shares accounts in the company name - it's everyday stuff now.
The catch is that the tax mechanics are not the same as personal investing, and they don't follow the rhythm most people assume. The taxable moment is rarely "when the money lands in my company account." It's almost always earlier. And if you run your company under FRS 105 - the micro-entity accounting framework that most of our clients use - your accounts won't necessarily flag it for you either.
So it's worth understanding the basic shape of the rules before you make the trade, not after.
The four questions that decide when tax arrives
Whenever you're trying to work out whether a company investment move has tax consequences, four questions get you most of the way there:
- What kind of asset is it? Crypto, shares, fund units, cash on a platform - they don't all sit in the same tax bucket.
- Did you actually dispose of it? Disposal is broader than "sold for cash," which is where Mel got caught.
- Did income arise? Sometimes income is treated as having arisen even when no cash was paid out.
- Does a special regime override the default? A handful of corporation tax codes can change the timing in ways the headline rules don't suggest.
Most of the surprises we see in client files come from question 2 or question 3. Let's take them in turn.
"Disposal" is broader than you think
This is where most of the trouble starts. In tax terms, a disposal isn't just "I sold it for cash." It's any moment where you part with the asset - and the rules are deliberately wide.
A disposal happens when you:
- Sell the asset for money (the obvious one)
- Swap it for a different asset (Mel's situation)
- Switch from one fund into another on a platform
- Gift it to someone
- Use it to pay for something
What's not a disposal is moving an asset between places you still control. Shifting Bitcoin from one company-controlled wallet to another isn't a disposal because you still own it throughout. The clue is in the beneficial ownership: if it's still yours afterwards, you haven't disposed of anything.
The bit that catches people out is the swap. Mel didn't sell her Bitcoin for sterling - she exchanged it for Ethereum. But for tax purposes, exchanging one crypto for another is treated as if she'd sold the Bitcoin and used the proceeds to buy the Ethereum. Two transactions, not one. The Bitcoin disposal is the taxable bit, and the gain is calculated against what she originally paid for it.
The same logic applies to fund switches. If your company holds units in Fund A and you switch into Fund B - even where the platform makes it look like a single button-press operation - you've usually disposed of Fund A and acquired Fund B. The tax point is the switch date, not whenever you eventually sell Fund B.
"But the money's still on the platform"
This is the other half of the disposal misunderstanding, and it comes up almost every time we explain the swap rule.
Once a disposal has happened, leaving the proceeds sitting in platform cash doesn't undo it. The Bitcoin-to-Ethereum swap was a disposal of the Bitcoin on the day it happened. Whether the Ethereum stayed on the exchange, got swapped again three months later, or eventually came out as sterling into the company bank account is a separate matter. The original tax point is locked in.
The same goes for selling an ETF on 15 March, leaving the proceeds in platform cash for two months, and then buying a different ETF in May. The capital tax point was 15 March. The cash sitting on the platform between March and May is its own thing - and depending on how the platform holds it, it might generate small amounts of taxable interest in the meantime.
The mental model worth holding onto: the tax follows the transaction, not the withdrawal. Whenever an asset changes hands - even if it's all happening inside one account on one platform - that's the moment to pay attention.
Income that arrives without cash
Not as common, but still worth a mention here. The basic surprise is the same shape: tax can arise even when no money has been paid into anything you'd recognise as your account.
There are two ways this commonly shows up.
Accumulation units in funds
Many UK funds offer two flavours of unit: income units, which pay distributions out as cash, and accumulation units, which keep the income inside the fund and roll it up into the unit value. If your company holds accumulation units, the income is still taxable in the year it arises - even though nothing was paid out. The fund's annual tax statement will show the deemed distribution. It's easy to miss because there's no cash transaction to prompt anyone to look.
Bond-heavy funds and interest distributions
This one matters because of how companies are taxed on different income types. Most dividend income received by a UK company is exempt from corporation tax under the corporate dividend exemption. Interest income isn't. So the difference between a fund paying out a dividend distribution and a fund paying out an interest distribution is the difference between "probably no tax" and "definitely tax." Funds holding more than 60% in interest-bearing assets (bonds, cash, deposits) typically pay interest distributions rather than dividends. Worth knowing before you buy.
The thread running through both: "I didn't receive a payment" isn't a defence. The fund's tax pack tells the real story, and it's worth getting hold of one each year for any company-held fund investment.
The FRS 105 wrinkle - why your accounts won't warn you
Here's the bit that tends to surprise people most.
FRS 105 is the simplified accounting framework that most contractor companies use. It keeps things light: minimal disclosures, simplified statutory accounts, and - the relevant point here - no revaluation of investments. Under FRS 105, an investment sits on your balance sheet at what you paid for it (less any impairment), and that's it. It doesn't get marked up when the market value rises.
In practice, that means a few things.
The Bitcoin Mel bought for £8,000 two years ago still shows up on her company's balance sheet at £8,000, even if it's now worth £25,000. The accounts give no signal that anything's changed. Her year-end balance sheet looks the same whether she's been an active trader or hasn't touched the wallet all year.
That's fine - until something taxable happens. The accounts won't prompt you to think about tax, because in accounting terms, nothing visible has moved. But a disposal during the year still creates a chargeable gain, and that gain still needs to be calculated, reported, and paid for. The accounts and the tax computation can tell quite different stories about the same year.
It's worth contrasting this with FRS 102, the framework used by larger small companies. Under FRS 102, listed shares and ETFs are often held at fair value through profit or loss - so the balance sheet does move with the market, and gains and losses run through the P&L during the year. That does not automatically mean the tax follows the accounts treatment, but it does mean the accounting picture can look very different from FRS 105.
The practical takeaway: when you eventually sell, swap, or switch an investment, the tax bill is worked out against what you originally paid for it. If you bought the Bitcoin three years ago, it's the price you paid three years ago that matters. Same for the ETF you picked up in 2022 or the fund units from 2021. The purchase cost (and the increase in value) is not always front of mind - especially if the investment has been quiet for a few years and you've half-forgotten about it.
A quick tour of common asset types
The four-question framework gets you most of the way, but different asset types have their own quirks. Here's a quick run through the ones we see most often.
Crypto held as investment
The default treatment for most contractor companies. Buying it isn't a taxable event. Selling it for sterling is. Swapping it for another crypto is. Moving the same asset between your own wallets isn't. Year-end value movements don't trigger tax on their own - only the actual transaction does. The trickiest bit is usually keeping decent records, because exchanges aren't always great at producing the GBP-value-at-the-time-of-each-transaction information you'll need at year end.
Listed shares
Buying shares in a listed company through your Ltd works much the same way. The disposal is the taxable event, and the gain is calculated against what you originally paid. Where you've bought the same shares in the same company over multiple dates, they get pooled together (HMRC calls this a "Section 104 holding"), so your cost base is the average across the lot. Dividends received are usually exempt for a UK company under the corporate dividend exemption.
ETFs and authorised funds
Same disposal logic as shares: selling units is a taxable event, switching from one fund to another is a taxable event. The extra wrinkles are the income ones we covered earlier - accumulation units, interest distributions on bond-heavy funds. Annual fund tax statements are the thing you actually need; the platform's transaction history alone usually isn't enough.
Managed portfolios
If your company uses a managed portfolio service (the kind where someone else makes the buy and sell decisions), the tax position depends on what the company actually owns. If you own the underlying investments directly and the manager just trades them on your behalf, every trade they make is a potential disposal for you. If instead you own a single wrapper or fund interest and the manager is making decisions inside that wrapper, the tax position follows the wrapper, not the underlying. Worth knowing which one you're in before you sign up.
Private company shares
Subscribing for shares in a private company - say, a friend's startup - is treated like any other share investment. No tax on the way in. Tax on disposal, calculated against what you paid. Dividends, if any are ever declared, usually fall under the corporate dividend exemption. Keep the subscription paperwork; you'll need it years later when something eventually happens.
What about EIS, SEIS, and VCTs?
It’s worth addressing this one head-on because it comes up a bit. EIS, SEIS and VCTs can offer very attractive personal tax reliefs, including income tax relief and, in some cases, capital gains tax advantages or loss relief. Plenty of contractors hear about them and wonder whether they can run that kind of investment through the company.
The short answer is no. The headline reliefs on EIS, SEIS, and VCTs are written for individuals, not companies. If your Ltd subscribes for shares in an EIS-qualifying company, the company doesn't get the income tax relief - because companies don't pay income tax in the first place.
The practical takeaway: if you want the EIS/SEIS/VCT reliefs, you need to invest personally - which means taking the money out of the company first, paying whatever personal tax that generates, and then subscribing in your own name. Whether that maths works for you depends on your circumstances. It's a conversation worth having before you commit either way.
The bigger picture - close investment-holding company risk
OK, this section is a bit niche, but if you have ambitions of morphing your company into a mega investment fund while you sit on a beach and watch your money grow, then it’s important you know about this. It’s a real thing, and in the past some of our clients have sailed pretty close to the wind on this.
So far we've been talking about how individual transactions get taxed. There's also a broader question worth flagging: what happens if your company starts to look less like a contractor business and more like an investment vehicle.
HMRC has a category called the close investment-holding company, or CIHC. The label applies to a close company (which most contractor companies are) whose main activity is holding investments rather than trading. If your company tips into CIHC status, two things change.
First, you lose access to the small profits rate of corporation tax and marginal relief. CIHCs are taxed at the main rate on all their profits, regardless of how small. For a company that's been comfortably inside the small profits band, that's a meaningful jump in the tax bill.
Second, and further down the road, it can cause problems on exit. Business Asset Disposal Relief, the relief that can reduce the capital gains tax rate on the first £1m of qualifying lifetime gains when you eventually wind the company up, requires the company to be a trading company. Significant non-trading activity - like a substantial investment portfolio - can put that status at risk. So a contractor company that's quietly built up a sizeable investment book might find itself in a worse position when it's time to close down than one that hasn't.
None of this is a reason to avoid company investing entirely. A contractor company with most of its activity coming from contracts, and a modest investment portfolio on the side, is unlikely to have a CIHC problem. The risk grows when investing starts to dominate - either because the contracting work has wound down and the investments have grown, or because someone has been steadily moving money into the company specifically to invest it.
Keep the boring paperwork
The tax treatment is only half the job. The other half is proving the numbers. If your company invests through a platform, keep the annual tax statement, transaction history, purchase and sale dates, GBP values, fees, fund distribution reports, and year-end holdings report. For crypto, keep enough detail to show the sterling value of each purchase, sale, swap and fee at the time it happened. A screenshot of the portfolio value at year end is helpful, but it’s not enough on its own.
A good idea, with a bit of planning
Investing through your company can be a perfectly sensible option for some contractors with surplus business funds. Cash sitting idle in a business account is cash that isn't working for you. Putting some of it into investment accounts is a perfectly sensible way to build long-term value - and with the trading platforms available these days, it's never been easier or more accessible. It's something we're seeing more and more of among our clients, and on the whole, it's a good trend.
The point of this article isn't to talk you out of any of that. It's just to flag that the tax timing on company investments doesn't always work the way people instinctively expect. The taxable moments are sometimes earlier than you'd think (the swap, the switch, the deemed income event), and the accounts won't necessarily prompt you when those moments arrive. Knowing that up front makes the whole thing much smoother to manage.
If you're already investing through your company, or thinking about starting, the most useful thing is usually a quick conversation before you make any moves - so the tax consequences are clear, the records you'll need are lined up, and there are no surprises at year end.
And if you've already made some trades and you're not quite sure where they've left you - get in touch. It's a planning conversation, not a problem to be solved.