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  1. #1

    Nervous Newbie


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    Thumbs up Profit extract from LTD?

    Hi There,

    Normally an employee, recently started doing it alone, I've incorporated a LTD and will instruct an account as soon as some cash comes in. Therefore please excuse my ignorance, I have been reading various websites, but I'm only partially more clear than when I started.

    I'm sole director/shareholder and the only real employee / fee & income generator at this stage.

    I work for a small number of different companies as a contractor in the business of trading land & property development, as a result in certain circumstances the income can be fairly healthy but the costs are pretty low.

    My understanding of the most tax efficient income strategy for someone such as myself was a min salary or up-to 32,010 and draw down dividends of the net profits from the business.

    At what level of dividend does this stop being the best route, I've been using some of the free calculators and they all seem to give slightly different messages for my projected circumstances (as follows):

    I pay myself a salary of 32,010 for 13/14 (Assumption no additional interest or special benefits received).

    Profits for same period are 200k.

    Deduct 40k corporation tax, the net profit is 160k.

    My understanding is when overall personal income exceeds 100k you loose your tax free allowance.

    And as a higher rate tax payer, the dividend is liable for an additional personal tax liability of 22.5%, meaning it's taxed twice, although NIC only due on salary not dividends.

    What is the best way for me to get my grubby mits on the net profits in the above situation?

    Thanks in advance.

    Bob.

  2. #2

    Contractor Among Contractors


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    Quote Originally Posted by RobertTheBuilder View Post
    I work for a small number of different companies as a contractor in the business of trading land & property development
    Property investment company?

    Quote Originally Posted by RobertTheBuilder View Post
    My understanding of the most tax efficient income strategy for someone such as myself was a min salary or up-to 32,010 and draw down dividends of the net profits from the business.
    At what level of dividend does this stop being the best route, I've been using some of the free calculators and they all seem to give slightly different messages
    Almost certainly wrong, although it depends on personal circumstances of course.

    The usual* efficient salary is 7696, this incurs no NI. 32010 is the amount above the personal allowance of 9440 (i.e. to 41450) before suffering high rate tax.

    * Given the levels of income you mention, your case is not usual. Don't rely on the online calculators - see an accountant for advice.

    Quote Originally Posted by RobertTheBuilder View Post
    Profits for same period are 200k.

    Deduct 40k corporation tax, the net profit is 160k.

    My understanding is when overall personal income exceeds 100k you loose your tax free allowance.

    And as a higher rate tax payer, the dividend is liable for an additional personal tax liability of 22.5%, meaning it's taxed twice, although NIC only due on salary not dividends.

    What is the best way for me to get my grubby mits on the net profits in the above situation?
    Several points of confusion there. CT is due after deducting expenses, including salary. (so in your example (200k - 30k) * 20% = 34k). Is your company VAT registered? (hint: it probably should be)

    Best thing you can do is see an accountant.

  3. #3

    TPAFKAk2p2

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    Quote Originally Posted by Contreras View Post
    Property investment company?


    Almost certainly wrong, although it depends on personal circumstances of course.

    The usual* efficient salary is 7696, this incurs no NI. 32010 is the amount above the personal allowance of 9440 (i.e. to 41450) before suffering high rate tax.

    * Given the levels of income you mention, your case is not usual. Don't rely on the online calculators - see an accountant for advice.



    Several points of confusion there. CT is due after deducting expenses, including salary. (so in your example (200k - 30k) * 20% = 34k). Is your company VAT registered? (hint: it probably should be)

    Best thing you can do is see an accountant.
    WHS.

    Get an accountant.

    As Contreras said, what many on here do is take minimum salary, then divvies up to the higher tax allowance, leaving leftover profit in the company. If you're married and your spouse has no separate income, you can also make them a shareholder, thereby doubling the money you can take out before hitting the higher limit. It does leave the question of what to do with the leftover lolly - but if going > 100K means you lose your tax allowance, it sounds to me like it would be sensible not to do that every year if you have the option to leave the money in the company. You can also pay into pensions etc to reduce the tax burden.

  4. #4

    My post count is Majestic

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    Get an accountant...

    Read the links on the right particularly things like Expenses

    Use the search to find question and thread from people asking exactly the same question. Best search method is
    http://forums.contractoruk.com/welco...uk-forums.html

    Get yourself a healthy warchest built up first before trying to extract every penny of profit out of you company.
    'CUK forum personality of 2011' - Winner - Yes really!!!!

  5. #5

    More time posting than coding

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    If your personal income stands to exceed 100k then (in most cases) it would be slightly more tax efficient not to take a salary at all - note that if you do this then you will not gain a qualifying year towards your state pension.

    If you were to keep your annual earnings below 100k then (again, in most cases) it is best to take a salary upto the NI earnings threshold.

    If it is your first year and you have had another source of income previously in the tax year then there may be a completely different answer, it would be best to run through your options with your accountant.

    Hope this helps!
    Craig

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