Consultants giving three different views on investment

[Sonia...]

After weeks of research and consulting five separate accountants/consultants, I came back with the following three contradicting views on investment.

FIRST VIEW:

The 50K/200K investment refers to 50K/200K worth of funds transferred from the personal/sponsor's account to the business account in the form of unsecured director/s loan or shareholder funds.

However if really that is the case then what if business doesn't spend all 50k/200k (transferred funds) and there are still funds left in the business account at the time of extension. I do not see Policy Guidance stating anything on spending all the transferred (invested) funds within three years.

Also as per the accounting standards, isn't it weird that UKBA considers loan (unsecured directors loan) to be an investment

SECOND VIEW:

The 50K/200K investment refers to 50K/200K worth of investments (total assets, not expenditures) made by the business once 50k/200k worth of funds are transferred to the business account. You need to make sure that your total asset value in balance sheet equal 50K/200K by the time of extension. Example includes business investing in vehicles, equipments, furniture, land for business, buying other businesses, etc

THIRD VIEW:

The 50K/200K investment refers to 50k/200k worth of spending by the business (either its assets or expenditures, but doesn't include directors remuneration) once 50k/200k worth of funds are transferred to the business account. Example includes all the spendings such as your business investing in vehicle, employee salaries, marketing cost, bills, equipments, furniture, etc

I will appreciate if seniors/consultants could clarify as to what really should be the right approach/view as per the guidance of UKBA.

[nasiaziz]

Hi sonia,
Looking at your 3rd view i have a question in my mind
If one invest in the form of share capital or director unsecured loan we would need to balance the figure on balance sheet wither as tangible assets or intangible..but if a company spend the this money on employees salaries or other revenue expendutures how would you show those expenses in the balance sheet as those expenses comes on profir and loss account and these expenses are normally deducted from the revenue of the business..i my self am an accountant but confused about this..so.i wouldnt consider spending this money on salaries and bills and stuff more like i would spend it on furniture/vehicle/cash at bank or stock which comes on current assets side of the balance sheet.. any remaining money out of the 50/200k you can still.keep in your bank as cash at bank and your invest would be considered oncenyou transfer money into the company account and show it as share capital or director loan in year end accounts. And you will be fine. But the money needs to stay in the bank inless spend by the company after you transfer it once.
Thanks

[Olasunkanmi]

@ Sonia..., from UKBA point of view, all the 3 opinions are valid and correct. Its left to you to choose which option you want to follow.

You should also be aware that there is no 1 size fit all in business terminology, there are varied professional views on investment and UKBA cannot give a single definition for it as that will be totally wrong.

Another crucial point you should understand is that businesses takes time to grow and therefore, businesses might invest all their funds in salaries(except director's remuneration), expenses, running cost, assets e.t.c for certain period of time without getting any profit with the hope of developing their long term goal and profit might start to come in within 1st, 2nd, 3rd or even 4th year of the business start.

[ishfaqsangra]

Absolutely agree with ola

[nasiaziz]

@ola but if you spend the money on revenue expenditure then how would one balance the figures on balance sheet?

[nasiaziz]

homeoffice's whole point of this visa category is to establish new businesses or extend the existing ones incase you take over existing business and establishing or extending an existing business would only be possible by capital expenditure.and its common sense that you would only employ new staff only and only if your business is generating revenue if there wouldnt be any revenue why would you employ staff so their salaries would only be duductible from revenue and not the investment you do.

[Olasunkanmi]

@ nasiaziz, you stated as follows;

and its common sense that you would only employ new staff only and only if your business is generating revenue

Where did you get the idea that businesses only employ new staff only if they are generating revenue, have you not heard about long term investment, where businesses invest massive money into research & development programmes with the aim of making money once the products are fully developed and marketable. The period for the developmental stage could range from 1-10years or even more.

Home Office rule did not care if you make profit or loss, HO want you to employ 2 additional full-time staffs if you take over any existing business.

Home Office also want you to create 2 new full-time jobs within 3yrs if you also start your own business afresh and they don't also care if you make profit or loss.

The basic rule in business investment is that nobody knows if their business idea will be profitable or not, but they still take the ''risk'' of investing their money in the hope that it will be profitable.

[nasiaziz]

@ola
I was talking about a service business only
In a product manufacturing business you are right

[csmlv]

Very informative post. I had the very same doubts as Sonia and she put it across precisely.