Releasing equity from Ltd Company
Discussion
Like many on here, I begrudge paying both corporation tax and then personal tax on top, from profits within the company, as ultimately they are the same, though technical, and in the eyes of the HMRC, they are not. I go through the usual practises of paying a wage below the tax threshold (negating NI at the same time), then dividends up to the top of the basic rate tax band, which effectively is zero'd of tax. However, with changes coming into force, and wanting to release a large sum of money from the company, does anyone have any other bright ways of pay-out, without the huge tax burden associated with it? I believe there use to be an Entrepreneur scheme whereby you could fold your business (not ideal) and only pay 10%, but that seems to have been scrapped. Any other methods?
Unless you offshore it through some dodgy company, your best option is probably just to take it all out as a dividend now. Might be painful but at least it's better than waiting until next year.
I've be told to stay away from Directors loan accounts...
Also start paying at least some NI!!
I've be told to stay away from Directors loan accounts...
Also start paying at least some NI!!
Zoon said:
Vote through a dividend up to the maximum allowed and then have it on the accounts as a directors loan before the new rules apply. That way you have dividends available which haven't been subject to the 7% dividend tax.
Own 100% so no vote required, but how will a director loan help, is that not just a short term loan usually lasting around 12 months before it has to be paid back, or tax due on 'benefit in kind'?Shaoxter said:
Also start paying at least some NI!!
NI is covered by some convoluted rule that means my stamp is up to date (and verified).dodgydave said:
Entrepreneurs relief at 10% is still available if you want to close up a trading company.
Ok, interesting to know should I eventually decide to dissolve this company.The "benefit in kind" issue only applies where you borrow from the company. In this case the company is borrowing from you as it declares a dividend but does not pay it all straight away.
As it accelerates the dividend of course it accelerates your personal tax bill, albeit at the lower rates applicable now.
You are also restricted to only declaring dividends up to your existing reserves levels.
As it accelerates the dividend of course it accelerates your personal tax bill, albeit at the lower rates applicable now.
You are also restricted to only declaring dividends up to your existing reserves levels.
The new rules come into effect on tax year 2016/17 so taking as much out in the way of dividends before 5 April 2016 will ensure they are taxed under the "old" rules.
Obviously, the 32.5% tax rate on dividends above the Higher rate Tax Threshold has been in place for a number if years so if you take a large amount out now as a dividend you may have to pay tax at 32.5% (or higher if the amount extracted is much larger).
Also, there may be limits on how much dividend is available to be extracted due to the level of reserves available in the company.
As mentioned above, if the company is a trading company, then it is likely that the owner would receive Entrepreneur's Relief if the company was wound up (i.e. struck off or liquidated) which would effectively mean that Capital Gains Tax would be payable on the final distribution. However, there are restrictions on taking this option, especially if "Striking Off" is chosen rather than "liquidating". If liquidation is chosen as the way to go, the cost of liquidator's fees needs to be factored into the equation.
Obviously, the 32.5% tax rate on dividends above the Higher rate Tax Threshold has been in place for a number if years so if you take a large amount out now as a dividend you may have to pay tax at 32.5% (or higher if the amount extracted is much larger).
Also, there may be limits on how much dividend is available to be extracted due to the level of reserves available in the company.
As mentioned above, if the company is a trading company, then it is likely that the owner would receive Entrepreneur's Relief if the company was wound up (i.e. struck off or liquidated) which would effectively mean that Capital Gains Tax would be payable on the final distribution. However, there are restrictions on taking this option, especially if "Striking Off" is chosen rather than "liquidating". If liquidation is chosen as the way to go, the cost of liquidator's fees needs to be factored into the equation.
As it stands, I receive dividends up to the max within the basic rate tax threshold, so I effectively pay zero tax on it. Should I take a larger amount now (of which available funds from the business are not an issue), I'd pay 32.5% tax, so no point doing so. From April, any dividends I take will cost me 7.5%, which being lower than entrepreneur relief means I'd be better off just taking the max at 7.5% each year until the money runs out...not that I plan on striking off the business at this stage.
I'm not following the director loan principle sorry; ultimately it would tip dividends into the higher tax band regardless and leave me with a 32.5% bill
Anything else I can do. I'm already looking to increase the rental charged to the company, but that is minimal.
I'm not following the director loan principle sorry; ultimately it would tip dividends into the higher tax band regardless and leave me with a 32.5% bill
Anything else I can do. I'm already looking to increase the rental charged to the company, but that is minimal.
PurpleMoonlight said:
Are you married?
If so, make your wife a shareholder. She can then receive £5000 dividends without further tax.
Nope, just partnered, which is fine in itself, but then means the money cannot be transferred to me without benefit in kind, plus the additional self-assessment tax returns she'll no doubt then have to complete. She wasn't overly delighted that I offered to marry her for tax reasons If so, make your wife a shareholder. She can then receive £5000 dividends without further tax.
Eric Mc said:
Are you declaring the rental income you receive from your company as income in your personal self assessment tax return?
I believe so, along with a basic wage and interest from bank accounts, to keep below the £10k threshold. I have an extremely experienced accountant, very well respected, but always value other views I can take back to him.Just out of interest would I be correct to assume that if you could legitametly work / live in another country for 182 / 183 days a year, and that country has the same 182 / 183 rules as regards tax as the uk, you could pay all your company income as salary and not pay any tax? I guess it'd be sensible to have a few days holiday in a third country to avoid being too close on the 182 / 183 limit.
I am sole director of a uk Ltd (with 1 other employee) and have dual nationality in a country it'd be nice to live in for the uk winter. I think I could make a six month uk six month abroad work pattern viable. With increases in taxes, unless I'm missing something, this could pretty much pay for 6 months in the sun.
I am sole director of a uk Ltd (with 1 other employee) and have dual nationality in a country it'd be nice to live in for the uk winter. I think I could make a six month uk six month abroad work pattern viable. With increases in taxes, unless I'm missing something, this could pretty much pay for 6 months in the sun.
steve2 said:
So if 2 50/50 directors (over 55) stuck 10k into a pension before April, could we take it out later in the year and would we have to pay tax on it ?
I'm not an expert and the rules aren't that simple but essentially employer pension contributions are largely viewed as a business expense and therefore reduce the company profit and corporation tax. NI isn't payable by the employer on pension contributions. So from this point of view it is much better than dividends or salary.Simplistically the employee can take 25% of the pension pot tax free but the remaining 75% will be taxed at the marginal rate. I think the remaining 75% can be reinvested such that tax isn't immediately payable but it will be of interest to HMRC at some point. There are the usual caveats of if amounts are 'unusual' HMRC can take further interest,
Must be a good time to be a tax adviser. I don't consider myself to earn a lot of money but the way the rules are changing it increasingly feels like I am running a company for the benefit of paying tax and I will be taking advice from a tax professional to ensure I'm not paying more than I need to.
While I'm having s semi rant on £100k of profit I pay £20k (plus additional personal income tax) while so many big corporations pay either a fraction of that nothing. It's pretty harsh.
You can wind up the company and get a capital gain, if you have no other sources of capital gain you can take a fair bit tax free (can't remember how much) or you can exploit the entrepreneurial tax relief for as long as its available. If you're self employed or a contractor and the only employee of the company it's might be a good time to wind it up and start a fresh anyway depending on how long this companies been trading.
Or just spend the money on expanding the business or making a useful capital purchase, like a new car ;-)
Or just spend the money on expanding the business or making a useful capital purchase, like a new car ;-)
trickywoo said:
While I'm having s semi rant on £100k of profit I pay £20k (plus additional personal income tax) while so many big corporations pay either a fraction of that nothing. It's pretty harsh.
I know how you feel. It's perverse that we pay more CT that the likes of Starbucks and Facebook combined .....Gassing Station | Business | Top of Page | What's New | My Stuff