Withdrawing money from LTD
Discussion
Hello
Ant advice would be appreciated. I am contracting through a limited company. The ltd has been going since sep 2017. At this time was also employed full time and did any extra contract work on the side via the LTD (on the advice of my accountant). I left this full time job in September 2018 and have contracted since. I am taking up a full time job again in November this year. Salary in the previous job was circa 50k and the new job will be circa 70k. I will have around 70k in the LTD by November. We have just been living off my wife's salary and hence hardly any money has been drawn from the Ltd (other than dividend allowance). From November I will do the odd bit of extra contract work but otherwise the income outside of my LTD will drop.
I'd appreciate any advice on how to withdraw the cash from the LTD. From what I understand I will be taxed according to by higher tax rate from my full time jobs if I take the money as dividends. Are there any other options? My accountant suggests not. I have read about entrepreneurs relief and liquidation but am not sure if this is applicable? As mentioned extra work will be reduced significantly and so I don't need the LTD as such.
Any advice appreciated.
Thanks
Ant advice would be appreciated. I am contracting through a limited company. The ltd has been going since sep 2017. At this time was also employed full time and did any extra contract work on the side via the LTD (on the advice of my accountant). I left this full time job in September 2018 and have contracted since. I am taking up a full time job again in November this year. Salary in the previous job was circa 50k and the new job will be circa 70k. I will have around 70k in the LTD by November. We have just been living off my wife's salary and hence hardly any money has been drawn from the Ltd (other than dividend allowance). From November I will do the odd bit of extra contract work but otherwise the income outside of my LTD will drop.
I'd appreciate any advice on how to withdraw the cash from the LTD. From what I understand I will be taxed according to by higher tax rate from my full time jobs if I take the money as dividends. Are there any other options? My accountant suggests not. I have read about entrepreneurs relief and liquidation but am not sure if this is applicable? As mentioned extra work will be reduced significantly and so I don't need the LTD as such.
Any advice appreciated.
Thanks
As keirik has said, if you not actually need this money in the near future putting into a pension/SIPP could make a great of sense.
As well as being able to get the money out of the company tax free it has the added benefit of reducing your corporation tax bill.
If you have had any sort of pension in place over the last three tax years (it soesn't matter whether you contributed to them or not) you can carry forward any unused allowance to get the whole lot it.
This would certainly give your pension provision a good boost.
As well as being able to get the money out of the company tax free it has the added benefit of reducing your corporation tax bill.
If you have had any sort of pension in place over the last three tax years (it soesn't matter whether you contributed to them or not) you can carry forward any unused allowance to get the whole lot it.
This would certainly give your pension provision a good boost.
Sound suggestion from previous posters. If you really need the money out in your back pocket I have four suggestions:
1. Continue to take dividend limit extraction out till funds expired. Downside is that you will continue to have to submit annual returns and accounts until then.
2. Close down the company and use entrepreneurial relief to reduce tax liability. Downside is returning to contracting any time soon might be problematic.
3. Buy yourself a brand new Tesla EV (or other suitably expensive EV) and wallow in the smugness of 0% BIK from April 2020.
4. Pull the money out and pay the relevant tax at 32.5%. Obvious downside.
1. Continue to take dividend limit extraction out till funds expired. Downside is that you will continue to have to submit annual returns and accounts until then.
2. Close down the company and use entrepreneurial relief to reduce tax liability. Downside is returning to contracting any time soon might be problematic.
3. Buy yourself a brand new Tesla EV (or other suitably expensive EV) and wallow in the smugness of 0% BIK from April 2020.
4. Pull the money out and pay the relevant tax at 32.5%. Obvious downside.
Have you drawn any PAYE? Your NICs will not accrue without.. and if you draw just a few quid past LEL you are sorted. LTD may also be qualifying for £2k NI refund so you could take a bit more.
I appreciate you may be going back to a PAYE roll so you need to check the figures carefully with an accountant.
I appreciate you may be going back to a PAYE roll so you need to check the figures carefully with an accountant.
Many thanks for all the replies. It's much appreciated. A Tesla would clearly be my preferred option but I suspect it won't go down well in the house.
I have an NHS pension but no other. Is there any logic to starting new pension via the LTD?
Is it possible to invest the funds in something similar to an stocks and shares isa? I don't kind leaving the money in the company but it would nice to be able to access it before retirement if needed in an emergency. But then it seems a shame to leave it there and not making it grow.
Re entrepreneur relief - my understanding is that I could not then go back and work in a similar field for a set amount of time. This would be an issue I think.
I have an NHS pension but no other. Is there any logic to starting new pension via the LTD?
Is it possible to invest the funds in something similar to an stocks and shares isa? I don't kind leaving the money in the company but it would nice to be able to access it before retirement if needed in an emergency. But then it seems a shame to leave it there and not making it grow.
red_slr said:
Have you drawn any PAYE? Your NICs will not accrue without.. and if you draw just a few quid past LEL you are sorted. LTD may also be qualifying for £2k NI refund so you could take a bit more.
I appreciate you may be going back to a PAYE roll so you need to check the figures carefully with an accountant.
No PAYE drawn just dividends.I appreciate you may be going back to a PAYE roll so you need to check the figures carefully with an accountant.
Re entrepreneur relief - my understanding is that I could not then go back and work in a similar field for a set amount of time. This would be an issue I think.
worsy said:
Sound suggestion from previous posters. If you really need the money out in your back pocket I have four suggestions:
1. Continue to take dividend limit extraction out till funds expired. Downside is that you will continue to have to submit annual returns and accounts until then.
2. Close down the company and use entrepreneurial relief to reduce tax liability. Downside is returning to contracting any time soon might be problematic.
3. Buy yourself a brand new Tesla EV (or other suitably expensive EV) and wallow in the smugness of 0% BIK from April 2020.
4. Pull the money out and pay the relevant tax at 32.5%. Obvious downside.
Great advise. The only thing I would add is to maybe add your wife as a shareholder and pay her some dividends each year. Would only really work if she’s currently a lower rate taxpayer and you then top her salary up to the higher rate threshold. 1. Continue to take dividend limit extraction out till funds expired. Downside is that you will continue to have to submit annual returns and accounts until then.
2. Close down the company and use entrepreneurial relief to reduce tax liability. Downside is returning to contracting any time soon might be problematic.
3. Buy yourself a brand new Tesla EV (or other suitably expensive EV) and wallow in the smugness of 0% BIK from April 2020.
4. Pull the money out and pay the relevant tax at 32.5%. Obvious downside.
The best options are pension or entrepreneurs relief though.
Worsy, can you advise on the Tesla / 0% BIK option? I’ve not heard of this before...
JapanRed said:
worsy said:
Sound suggestion from previous posters. If you really need the money out in your back pocket I have four suggestions:
1. Continue to take dividend limit extraction out till funds expired. Downside is that you will continue to have to submit annual returns and accounts until then.
2. Close down the company and use entrepreneurial relief to reduce tax liability. Downside is returning to contracting any time soon might be problematic.
3. Buy yourself a brand new Tesla EV (or other suitably expensive EV) and wallow in the smugness of 0% BIK from April 2020.
4. Pull the money out and pay the relevant tax at 32.5%. Obvious downside.
Great advise. The only thing I would add is to maybe add your wife as a shareholder and pay her some dividends each year. Would only really work if she’s currently a lower rate taxpayer and you then top her salary up to the higher rate threshold. 1. Continue to take dividend limit extraction out till funds expired. Downside is that you will continue to have to submit annual returns and accounts until then.
2. Close down the company and use entrepreneurial relief to reduce tax liability. Downside is returning to contracting any time soon might be problematic.
3. Buy yourself a brand new Tesla EV (or other suitably expensive EV) and wallow in the smugness of 0% BIK from April 2020.
4. Pull the money out and pay the relevant tax at 32.5%. Obvious downside.
The best options are pension or entrepreneurs relief though.
Worsy, can you advise on the Tesla / 0% BIK option? I’ve not heard of this before...
https://www.nextgreencar.com/company-car-tax/bik-r...
Outright purchase means you are able to write down capital in first year....ie. corp tax is reduced by the equiv amount of income. VAT still applies. When you dispose of the car you then attract corp tsx on the income and assuming therefore it is worth less you effectively save corp tax on the difference.
PCP or PCH has similar benefits. With a lease you can reclaim 50% of the VAT. I understand that with PCP you claim the value of the car up front then pay Corp Tax on the GFV when you hand it back. Check this detail though, I'm waiting on my accountant to let me know.
https://www.gov.uk/capital-allowances/business-car...
Mr Pointy said:
OP, has no-one pointed out to you that taking dividends only from you ltd co & not a reasonable salary as well might lay you open to HMRC querying this arrangement? They can decide your dividends are salary & tax you accordingly. You'll owe the back NI as well.
There is no "red flag" for taking dividends only from a company. It is a perfectly legal and transparent way of structuring income. What you allude to is IR35 and that is a different consideration.worsy said:
JapanRed said:
worsy said:
Sound suggestion from previous posters. If you really need the money out in your back pocket I have four suggestions:
1. Continue to take dividend limit extraction out till funds expired. Downside is that you will continue to have to submit annual returns and accounts until then.
2. Close down the company and use entrepreneurial relief to reduce tax liability. Downside is returning to contracting any time soon might be problematic.
3. Buy yourself a brand new Tesla EV (or other suitably expensive EV) and wallow in the smugness of 0% BIK from April 2020.
4. Pull the money out and pay the relevant tax at 32.5%. Obvious downside.
Great advise. The only thing I would add is to maybe add your wife as a shareholder and pay her some dividends each year. Would only really work if she’s currently a lower rate taxpayer and you then top her salary up to the higher rate threshold. 1. Continue to take dividend limit extraction out till funds expired. Downside is that you will continue to have to submit annual returns and accounts until then.
2. Close down the company and use entrepreneurial relief to reduce tax liability. Downside is returning to contracting any time soon might be problematic.
3. Buy yourself a brand new Tesla EV (or other suitably expensive EV) and wallow in the smugness of 0% BIK from April 2020.
4. Pull the money out and pay the relevant tax at 32.5%. Obvious downside.
The best options are pension or entrepreneurs relief though.
Worsy, can you advise on the Tesla / 0% BIK option? I’ve not heard of this before...
https://www.nextgreencar.com/company-car-tax/bik-r...
Outright purchase means you are able to write down capital in first year....ie. corp tax is reduced by the equiv amount of income. VAT still applies. When you dispose of the car you then attract corp tsx on the income and assuming therefore it is worth less you effectively save corp tax on the difference.
PCP or PCH has similar benefits. With a lease you can reclaim 50% of the VAT. I understand that with PCP you claim the value of the car up front then pay Corp Tax on the GFV when you hand it back. Check this detail though, I'm waiting on my accountant to let me know.
https://www.gov.uk/capital-allowances/business-car...
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