Getting money out of a limited company

[Noctule1]

My accountant advises payment in dividends only (average is around £5k p.a.) so cash is piling up in my company. I don't need more income, but worry that I won't be able to access the cash when I need it without a big tax bill, especially with the new dividend tax. Without a salary - can the company pay into my pension directly ? And is it wise to do so ? What are the risks
Maybe I need to change accountants !

[LondonManc]

No salary? No NIs, no state pension.

Your accountant has been living in a box.

[TykeMerc]

Yes, change accountants, ideally to one with a clue.

There's a whole sticky thread about accountant recommendations, the ones listed there are actually capable unlike what you think your current one is.

http://forums.contractoruk.com/accou...-requests.html

14 pages of it.

[AntonioDJCA]

My accountant advises payment in dividends only (average is around £5k p.a.) so cash is piling up in my company. I don't need more income, but worry that I won't be able to access the cash when I need it without a big tax bill, especially with the new dividend tax. Without a salary - can the company pay into my pension directly ? And is it wise to do so ? What are the risks
Maybe I need to change accountants !

1. You can pay into a pension and receive Corporation Tax relief - it is wise to do so if you can afford it.

2. You can pay yourself a salary, get the money in your pocket and get Corporation Tax relief (this would only be recommended up to your personal allowance).

Honestly, if these basic questions are not being answered by your accountant, you should look to change. I can only imagine that there's loads more you aren't doing efficiently.

[Pondlife]

How are you surviving on 5K p.a.?

If you have other income sources then they may determine your best course of action.

[WordIsBond]

Slow down a little.

OP is probably not living on £5K pa, since he doesn't need more income. That means he is probably up against the higher rate band, and his accountant probably is advising him not to pay salary because it would attract income tax and maybe higher rate tax.

Don't discard your accountant's advice based on the word of a few experts on the Internet who don't know your whole situation. Chances are better that your accountant has good reason for what he is saying than that he is an idiot.

Suppose OP has other income of £36K a year? Accountant's advice would be spot on.

OP, if you don't trust your accountant to know what he is doing, get another accountant. If you think he does know what he's doing, but you need some reassurance, either post a lot more detail here so people can give real feedback, or talk to another accountant. If you are fully confident in him, you probably want to talk to him sooner rather than later about what you can do.

Yes, you can pay money from your Ltd Co into a pension. It doesn't incur any tax unless you breach the annual or lifetime pension limits. But the pension income will be taxable when you start to draw it. On the other hand, you can just leave it in your company and keep drawing dividends -- into retirement, if the money lasts that long. If you do that, the tax rate, as long as you stay out of higher rate tax, is likely to always be fairly low on dividends. So you might be best just leaving it where it is and using a good investment strategy within your limited company. Or, you c ,ould stop trading, close the company, and use entrepreneur's relief to get all the funds out at a low tax rate.

Without knowing how much other income you have, how much income your company has, how much reserve it has, how old you are, and a lot of other details, it would be pretty hard to give a fair analysis of the best options for you. That's why we pay accountants.

[northernladuk]

Obviously having an accountant is a given but that doesn't mean you can completely ignore your company finances. You should have at least a clue of what is going on. It's irresponsible of you if you don't. You should have a general idea of what you can pay yourself and your divi limits. It's all over this forum, google, accountant sites, newbie guides and so on. For you not to know the basics is a bit silly. How on earth can you question your accountant on the finer points when you don't know the basics.

You don't give nearly enough information for us to make a decision. You don't mention if you have earned something this year as PAYE which is why he wouldn't recommend a wage and is that 5k per month?

How long have you been contracting? If it isn't for long then a lot of that cash piling up will be A) VAT Money, B) Corp Tax and C) Your warchest. You should have something from your accountant advising how much is allocated to what. Your corp tax will be around 18K for a full year and VAT around 3k per quarter so can seem like a lot but none of it is yours.

You also need a warchest of 3 months minimum, 6 months to a year to be comfortable. That means at the end of the year there should be 20K (CT) + 3k VAT+ 25k (preferably a lot more) sitting in your account that is NOT spare money. 58K might seem a lot to be sitting there but you can see it's allocated.

If your accountant is rubbish then you must get rid but I've a feeling the OP hasn't a clue what is going on and is firing shots in the dark. I'd suggest he goes back to his accountant and asks him EXACTLY what is going on and understand what he says. I have a funny feeling when the OP understands this his situation will be a lot different to what he thinks it is now.

The Newbie Guides to the right should give you the basics before you go speak to your accountant.

[WordIsBond]

The Newbie Guides to the right should give you the basics before you go speak to your accountant.

This.

[stek]

Obviously having an accountant is a given but that doesn't mean you can completely ignore your company finances. You should have at least a clue of what is going on. It's irresponsible of you if you don't. You should have a general idea of what you can pay yourself and your divi limits. It's all over this forum, google, accountant sites, newbie guides and so on. For you not to know the basics is a bit silly. How on earth can you question your accountant on the finer points when you don't know the basics.

You don't give nearly enough information for us to make a decision. You don't mention if you have earned something this year as PAYE which is why he wouldn't recommend a wage and is that 5k per month?

How long have you been contracting? If it isn't for long then a lot of that cash piling up will be A) VAT Money, B) Corp Tax and C) Your warchest. You should have something from your accountant advising how much is allocated to what. Your corp tax will be around 18K for a full year and VAT around 3k per quarter so can seem like a lot but none of it is yours.

You also need a warchest of 3 months minimum, 6 months to a year to be comfortable. That means at the end of the year there should be 20K (CT) + 3k VAT+ 25k (preferably a lot more) sitting in your account that is NOT spare money. 58K might seem a lot to be sitting there but you can see it's allocated.

48k Shirley?

[northernladuk]

48k Shirley?

I've added 20% float for contingencies.....