Tax Savings??

[Steve H]

This has been asked before but by Co Directors and I was wondering if it is different for Partners. I am a partner in a company which is doing very well. I take a monthly salary (to pay bills etc) but of course, I pay tax on the net profit of the company and this puts me in the higher tax bracket. We have a largeish surplus of cash in the account and I also pay into a personal pension (I get tax releif). The question is... am I missing something which could help me take further income and avoid tax... dont really want to increase pension payments as I would like to have the income now rather than later.

I am keen to pay off my mortgage asap (and pay as little tax as possible)

Sorry to waffle on
Steve

[Eric Mc]

Are you being taxed under PAYE on your salary (I hope not)?

[Steve H]

no Eric Im not Paye. I just take a monthly amount to cover my xxx's and sometimes take a lump throughout the year. I know that irrespective of what I take I pay tax on 50% of the net profit of the company. I have looked into the purchase/lease of cars and as we do not need them the mileage is so low the tax savings would be minimal. The only other thing I can think of is to use my wifes tax allowance as she is currently not working....is this possible
Steve

[Eric Mc]

In that case your salary figure is irrelevant. As you say, your personal tax liability is essentailly based on your overall share of the partnership's taxable net profits.

Manipulating the Profit Sharing Ratio is one way of adjusting personal tax liabilities but that may not be posssible due to the partnership arrangements and other partners' requirements.

Making your wife a partner in the business would allow some element of profit to be shunted her way but there may be reasons (technical and business) why your wife cannot be a partner.
In addition, we have the spectre of the anticipated new anti income-splitting rules coming into effect soon (in the wake of the Arctic Systems case) which might make such arrangements unworkable in the future anyway.

Outside of the partnership, an easy route to take would be to ensure that as many of your savings and investments are jointly held - or even fully in your wife's name.

[Steve H]

Thanks Eric, thats good advice. I already have the joint ownership of savings although I am planning to use most of it to pay a lump off the mortgage at the end of the year. My wife is at home with the 2 children and so trying to justify her working here would be hard. I suppose I could ask her to do a small amount of paperwork at home and pay her a nominal wage while the children are at school!!!

I think I have covered most angles, not looking to do something illegal just wanted to make sure I'd cover all the angles.
Steve

[Steve H]

Thanks Eric, thats good advice. I already have the joint ownership of savings although I am planning to use most of it to pay a lump off the mortgage at the end of the year. My wife is at home with the 2 children and so trying to justify her working here would be hard. I suppose I could ask her to do a small amount of paperwork at home and pay her a nominal wage while the children are at school!!!

I think I have covered most angles, not looking to do something illegal just wanted to make sure I'd cover all the angles.
Steve

[touching cloth]

Becoming a Ltd company might surely offer benefits re the tax (dependent on total profit) - I know for me we hit a point were it became beneficial even once you took into account the additional admin and accouting costs. Or is there a reason you don't want to go down this route?

[Steve H]

never really given it much thought, what are the advantages?
Steve

[Gordon Brown]

Steve H said:

never really given it much thought, what are the advantages?
Steve

Besides the liability issue if the business goes t1ts up, as long as the other half truely works in the business you can pay youself and her partly in wages under the personal allowance and the rest in share dividends upon which the business has paid corporation tax at 21% (soon to be 22%) and no NI contributions. So you can take £70K+ out between you and be paying only the 21% CT. But your partner might not want that as I recall that unless you configure it right all dividend share holders take the same amount relative to their holding although they can sign a dividend waiver. You can keep under the 40% PAYE limit (which in fact is 32.5% for share dividends) and build up retained profit from which you can pay a dividend in future years when business isn't so good. You can off-set losses one year against profits from last or next year. You get £150 allowance for each staff member for an annual party (we had ours in Rome last week).

Not sure how the new CGT rules apply for when you retire (Eric Mc?) under each option?

Downside: set up costs and more cost for accounts and paperwork to fill in. You become an employee of the business so the business entity owns the business. You have to do your own PAYE for employees or pay someone to do that and send HMRC a monthly cheque for PAYE and any NI.

I had a post a few days ago on another feature of share dividends that means HMRC presume you take 10% more than you do (not sure why) which has to be accounted for which is why I am not sure on the exact figure you can take and only pay the 21% CT.

Narrowing of the difference between PAYE and CT rates for basic rate tax payers is making it less atractive.

Your accountant will advise you I am sure.

[Gordon Brown]

http://www.pistonheads.co.uk/gassing/topic.asp?h=0...

10% thing

[Eric Mc]

The offest of trading losses against current year other income and future year trading profits is available to non-limited company businesses as well. In fact, it can sometimes be very useful for an individual to be able to offset a trading loss against other income in the same year as they can sometimes generate a tax refund nby doing this.

If the loss is in a limited company, there is no way that the individual can make use of that loss as it is owned by the company and can only be offsst against the company's other income or future profits.