P2P and "close investment-holding companies"

HMRC define a "close investment-holding company" in a negative way (see www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm60710 ):

"In broad terms, a close company will be a CIC if it does not exist wholly or mainly for the purpose of trading commercially or investing in land for (unconnected) letting or acting as a holding or service company within a group which exists wholly or mainly to trade or invest in land for letting."

P2P lending is (these days) my company's principal activity (classed as SIC 64921 - Credit granting by non-deposit taking finance houses and other specialist consumer credit grantors) and it trades loans actively (for profit, for diversification, to avoid or minimise risk) across pretty much all of platforms it lends on. Therefore I am comfortable it satisfies the "trading commercially" test and is not a CIC.

What's the definition of 'trading' in this context?  I didn't think it meant buying and selling financial instruments like P2P loan parts.  I thought it meant trading in the other sense -- buying and selling goods and services to other companies or consumers.  As in 'Tesco are trading in many parts of the country".

Your example Tesco's - they are trading by buying goods and selling them for a profit

Should a company be buying and selling loans for a profit, then you could argue it is trading (although this is still grey area and without another trade occurring within the business, I could easily see HMRC argue this was actually investing)

Should a company have most (generally over 20%) of its income from investing (ie buy and hold for a profit), then your likely to be classed as a CIC, where you lose several tax advantages

Your much better off running your investing through an existing trading company, so that the investing profits do not exceed approx 20% of the total income of the business  

SteveT:  Yes, indeed.  But I think some people are forgetting what the first 'C' in CIC stands for -- Close.  No doubt there are exceptions but, by and large, the UK financial services industry is not run by 'close' companies.  In this context, close means with a very limited ownership.  A small company with a sole owner trading in P2P loan parts -- or possibly where ownership is shared with their partner, or the in-laws, or the parents -- is likely to be classified as a close company.

Or am I misunderstanding something?

I find myself in this very position since I 'retired' last year but I am running the Company down over a period of years.

When I last met my accountants I questioned if my Company (was nuclear engineering) had changed to a trading company and their view was no.  My company is now simply investing the cash (6 figure sum) ensuring that I maintain my responsibilities as a director.

With FS the company is holding 99.5% of its loans bought on the aftermarket which are then held to term.  Spreadsheets are kept to cover every transaction and profit is based on simple (capital + final interest) - (total cost at purchase)

Why not ER?

Think it effects IHT and also VAT registration

Do we have any qualified accountants on here who can advise? I have asked my own accountant but P2P isn't something he is familiar with. My own thinking is that a company solely investing its funds in P2P and not otherwise trading would be classed as a CIC. The drawbacks of this don't seem particularly severe so I'm also of the opinion that it doesn't really matter.

Mods - I also think this should be moved to general.