Best use of capital in Ltd company

Best use of capital in Ltd company

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Discussion

GreaseOyster

Original Poster:

17 posts

196 months

Thursday 17th January 2008
quotequote all
Hi I'm looking for some advice regarding the running of my ltd company. I'm a freelancer and have built up a fair amount of capital in my limited company. What is the best thing to do with it? I take as much as I need out in a dividend but am reluctant to take out more due to income tax charges.

What would be the most tax efficient thing to do?

Take the money out and swallow the income tax?
Invest in Unit trusts OEICs etc? With the profits adding to the capital for the future?
Something else all together?

Thanks in advance...

Eric Mc

122,055 posts

266 months

Thursday 17th January 2008
quotequote all
Are you maximising your dividend income each tax year?

Does the company pay into an approved pension scheme on your behalf?

Are you making use of mileage claims?

GreaseOyster

Original Poster:

17 posts

196 months

Thursday 17th January 2008
quotequote all
I take a fair dividend which takes me significantly into the higher tax bracket. This is enough to cover some savings, paying the mortgage and general living costs.

As for a pension - no the company doesn't pay into one. It's one of the things that I've been meaning to do.

Mileage allowance - I travel to work by either public transport or bike.

Eric Mc

122,055 posts

266 months

Thursday 17th January 2008
quotequote all
Do you make the relevant claims for those forms of transport or does the company pay those costs directly (there is a mileage rate for use of your own bicycle - but it's fairly small).

Getting the company to pay into an approved scheme might be worth looking at - if you haven't lost complete faith in pensions.

The company gets full Corporation Tax relief on the payents it makes and you are not taxed on it personally as a Benefit in Kind. So - a double tax saving.

GreaseOyster

Original Poster:

17 posts

196 months

Thursday 17th January 2008
quotequote all
Thanks Eric MC

I claim for the transport costs, and I'll look to get a pension setup.

Any advice on what to do with anything left over?

NoelWatson

11,710 posts

243 months

Thursday 17th January 2008
quotequote all
GreaseOyster said:
Thanks Eric MC

I claim for the transport costs, and I'll look to get a pension setup.

Any advice on what to do with anything left over?
I was planning to wind mine up after three years and take use the CGT taper relief, but waiting to hear if Darling goes through with the CGT changes. I put a lump sum each year as an employer contribution into my pension. I also put some into the stock market - TD Waterhouse do a company share dealing account.

Remster500

194 posts

218 months

Thursday 17th January 2008
quotequote all
I find myself in the same boat. I pay myself a small salary in order to maintain NI contributions and then pay a dividend in April each year which pushes me well into the higher tax payer bracket.

My Company has a six figure sum banked in Corporate Bonds which are re-invested upon maturity for 6mths at a time.

Can't justify purchasing any new plant/machinery in the current climate and premises are owned (no mortgage). Therefore the capital just sits there attracting a paltry 5.8% interest which of course is then added to profits and tax paid on.

I am seriously tempted to extract a larger dividend in April this year and treat myself to a new set of wheels. Obviously Gordon will take his 32.5% cut!!!! frown

Remster500

194 posts

218 months

Thursday 17th January 2008
quotequote all
With regard to pensions. I have a private pension which I pay into monthly from my personal bank a/c.

Is there any way the Company can agree to make a lump sum payment into this existing scheme? As 75% shareholder in th Company, can such a thing be done without similar being made to the other 25% shareholder?


Aranell

868 posts

225 months

Thursday 17th January 2008
quotequote all
Remster500 said:
My Company has a six figure sum banked in Corporate Bonds which are re-invested upon maturity for 6mths at a time.
Where do you get the corporate bonds from? I have a bond with my current bank but the rates aren't that great, and the savings account rates are incredibly poor. I only decided to go with the bond as it was a short-term thing with no risk attached and I didn't have the time to sort setup an account with another bank (with better rates). The bond is maturing soon so I'd be interested to see if there was a way I could make better use of the money?

NoelWatson

11,710 posts

243 months

Thursday 17th January 2008
quotequote all
Remster500 said:
With regard to pensions. I have a private pension which I pay into monthly from my personal bank a/c.

Is there any way the Company can agree to make a lump sum payment into this existing scheme?
I did with my SIPP. I just had to tell them it was an employer contribution so they didn't reclaim tax

Remster500

194 posts

218 months

Thursday 17th January 2008
quotequote all
The Corporate Bond is with our bankers Natwest. We get a % bonus each time we re-invest which has increased the figure to this percentage.

Aranell said:
Remster500 said:
My Company has a six figure sum banked in Corporate Bonds which are re-invested upon maturity for 6mths at a time.
Where do you get the corporate bonds from? I have a bond with my current bank but the rates aren't that great, and the savings account rates are incredibly poor. I only decided to go with the bond as it was a short-term thing with no risk attached and I didn't have the time to sort setup an account with another bank (with better rates). The bond is maturing soon so I'd be interested to see if there was a way I could make better use of the money?

GreaseOyster

Original Poster:

17 posts

196 months

Thursday 17th January 2008
quotequote all
A very distant relative of my wife own a small finance house which give competitive rates of interest. Generally between base rate + 0.1% up to + 0.8% depending on the term of the deposit. They will only accept a minimum of £15,000 on deposit. I have some money with them, but thought there must be better ways of using your capital.

Olf

11,974 posts

219 months

Friday 18th January 2008
quotequote all
Remster500 said:
With regard to pensions. I have a private pension which I pay into monthly from my personal bank a/c.

Is there any way the Company can agree to make a lump sum payment into this existing scheme? As 75% shareholder in th Company, can such a thing be done without similar being made to the other 25% shareholder?
The only tie up to sharing equally with another shreholder is on dividends.

Your pension is between you and your employer - i.e. your company. If your company gives you a bigger pension contribution it is nothing to do with the other shareholder unless they complain, which I'm sure they wouldn't... Right wink

Digga

40,352 posts

284 months

Friday 18th January 2008
quotequote all
Eric Mc said:
- if you haven't lost complete faith in pensions.
Get a SIP (Self Invested Pension), at least that way you can **** it up yourself!

GreaseOyster

Original Poster:

17 posts

196 months

Friday 18th January 2008
quotequote all
What is my tax position if I take out a stakeholder pension for my one year old son? Do the contributions I make to his pension be taken from my income?

GreaseOyster

Original Poster:

17 posts

196 months

Friday 18th January 2008
quotequote all
Just to clarify my last post. Do I get tax relief by making contributions to my sons pension?

Eric Mc

122,055 posts

266 months

Friday 18th January 2008
quotequote all
Is he an employee?

GreaseOyster

Original Poster:

17 posts

196 months

Friday 18th January 2008
quotequote all
No.

thewave

14,703 posts

210 months

Friday 18th January 2008
quotequote all
You don't get tax relief, but your son would.

I have two SIPPS, one for each child, the contribution I make for each of them is grossed up for basic rate tax too.

Ie You put in £2808 per year, it's then grossed up to £3600. Easy way of making £792 for your son, and it doesn't affect what you can invest either.

VictorMeldrew

8,293 posts

278 months

Friday 18th January 2008
quotequote all
You could do what a mate of mine did at Christmas. He walked into the local Cheshire Home and made a substantial donation. I only know that because my sister happens to be an executive in the Charity concerned.

That's quality, the guy has gone up several notches in my estimation (and I already though he was a class act).

Just an idea.