Ent. Visa extension in May - 200K Route

one of my friend got extension this May for Ent. Visa extension under 200K route and I have been helping him prepare for this and been reading the guidance and this forum and got some questions.

He has been actively and genuinely doing business for the last three years, but not all 200K has not yet been invested.

1) does re-investment of profits generated from the initial investment count towards 200k ?

2) do we need to provide documentary evidence for the source of funds of the investment ?

3) Is there a time limit by which the whole 200k should be invested ? His accountant has said the money
should be invested by March for him to generate accounts? is this correct ?

any inputs much appreciated.

n8net wrote:one of my friend got extension this May for Ent. Visa extension under 200K route and I have been helping him prepare for this and been reading the guidance and this forum and got some questions.

He has been actively and genuinely doing business for the last three years, but not all 200K has not yet been invested.

1) does re-investment of profits generated from the initial investment count towards 200k ?

2) do we need to provide documentary evidence for the source of funds of the investment ?

3) Is there a time limit by which the whole 200k should be invested ? His accountant has said the money
should be invested by March for him to generate accounts? is this correct ?

any inputs much appreciated.

1) Investment must be in form of share capital or cash (director's loan + loan agreement) and this must be reflected in the company's accounts that you submit clearly. The rules do not specify where the money comes from, it simply requires it to be invested fully under certain conditions. You need to draft a loan agreement before you inject money into the business if you want it to be considered a cash investment. Alternatively you can pay the company in return for shares and issue share certificates. I repeat again, during the extension, all of this needs to be quite clear in your business accounts.

2) Didn't you provide that when applied initially ?? No need to show source of your money during extension

3) Investment should happen during the 3 year period of grant but you need to show this in your submitted company accounts. This means that you need to do it as soon as you can so that the investment falls within an accounting period in which you and your accountant have time to prepare the relevant account and file it, before the extension time arrives. Business accounts usually need to be filed with HMRC/Companies house within 9 months of an accounting period ending.

Hi Zima88,

thanks a lot for the reply.

so If I understand you correctly, as long as 200K is injected to the business in the form of directors loan or shares, we should be fine. even if it means part of the money is actually profits from the initial investment.

regarding, accounting period, pardon my lack of knowledge, so every company has an accounting period or is it something stipulated by the HMRC. and we cannot produce ad-hoc accounts prepared by a certified accountant ?

Thanks

As long as you can show that you injected min 200K into the business either via shares or Director's loan you are fine. When you receive dividends/bonus/salary from your profits, you already paid the taxes on it and that money is now yours. You can re-invest it back to your business, however obviously when you lend your company some money, you usually will get a tax free lump sum repayment from your profits (plus any interests) fro as your loan repayment instead of paying yourself benefits/salary which is taxable. The only thing that HO does not accept is when you pay yourself remuneration from your investment rather than from your profits.

Accounting period is a time interval in which the company books are balanced and the financial statements are prepared. When you run your company, you divide your business financial activity into intervals known as accounting periods (in most cases every 12 months) in which your company makes profit and pays its expenses. In this period, your keep track of what your company made or paid in a spreadsheet (Bookkeeping).
After your accounting period ends, your accountant gets these records from you and prepares accounts and balance sheets, refers it for an audit if legally necessary and calculates whether your company is in profit or loss. It is a legal requirement for your accounts to be submitted to HMRC and Corporation taxes to be paid, within the deadlines of HMRC (usually 9 months after the period ends)

Read more here: https://www.gov.uk/corporation-tax-accounting-period

Now If your accounting period is not over yet, you can ask your accountant to prepare a set of accounts up to a specific date just for the consideration of directors/shareholders or any interested third parties known as Management Accounts These are preliminary accounts that reflect what the company has done up to that point.

Hi Zimba88,

Thanks a lot again for a very descriptive and informative answers.

We will submit the management account upto near the period of extension showing 200k has been invested (but not necessarily spent) in the form of a Directors Loan. Hope HO would accept it.

Thanks a lot again for your time.