avoid 40% dividend tax

[northernladuk]

warchest is virtually none existent at the minute (although slowly building).

I would say that is your answer for the time beingLeave 6 months + in the company and when you are out of contract for 6 months you'll get it out under the threshold you are worried about.

IMO warchest > everything else in the first 6 months to a year of contracting. It's a long term career so it's not going to hurt to take a hit to cover your ass. We've had some right horror stories on here and yes it can happen to you.

And no, there are no quick and easy ways around the threshold. If there was it would be common knowledge.

Get an electric company car?

[TheFaQQer]

Does anyone know of any ways we can avoid having to pay this 40%.

Reduce the amount of money you take from the company, and you'll reduce the amount of tax you have to pay.

[northernladuk]

Reduce the amount of money you take from the company, and you'll reduce the amount of tax you have to pay.

Daaaamn I love this guy......

[ASB]

hi,

I am currently contracting, my wife is a director so we split the dividends 50/50.

It's looking like we will both go over the 30k dividend threshold and have to pay 40% on dividends we receive over that.

Does anyone know of any ways we can avoid having to pay this 40%. i.e. is there a different way we can take the money out etc.

Thanks

It has been pointed out that you don't pay 40% on it. That's the good news. For this year anyway.

Don't forget the rise in tax rates next year. There are calculators out there so I am not going to bother posting the link yet again.

Is it a one off requirement or ongoing (i.e. do you need the dividends for general day to day expenditure or is some of it for one off type spending). In the former case you are basically stuffed. In the latter you could go the loan route. There is not much point going the loan route if you are going to need that level of expenditure every year.

You might want to consider various less common methods.

A 90% scheme. This will give you comfort for a few years until there is a knock on the door.
Additional shareholders diverting the funds back to you. This will generally be fine until you have an investigation. (Actually just taking the cash out of the company and hoping for the best works pretty much the same way).
Liquidation through MVL. But not really effective if you plan doing any more trading.

So unfortunately you are stuffed.

However, on a slightly more serious note, if you can get the additional shareholders to be non resident in the UK and resident is a place which doesn't tax dividends or capital gains you may be onto something. This works for some. If there is serious money around.

[Crossroads]

What TheFaQQer said.

However do be wary of letting tax wag the lifestyle dog. As a hardened tax avoider I go far too far out my way to avoid paying tax whenever I can (legally). I sometimes find it is quite a source of frustration and I probably could have more fun at the expense of bigger tax bills, but on the flip side the warchest is very healthy indeed :-)

[northernladuk]

And also don't get carried away early and live beyond your means. I think most of us remembers the face of that guy/gal that withdraws it all every year and lives the highlife when they found out they weren't going to get the extension they expected.

There are factors outside your control that can stop you working like illness etc. If you've been used to one income before contacting and all of a sudden your loaded it's tempting to go mad. When contracting dies next year you'll be back to that one permie income.

[phillcooper]

Thanks for the advice everyone.

My plan of taking the money out now, Isnt gonna work unless I want a hefty tax bill.

Looks like I might be taking the sensible option and leaving a bit in the business for when i might need it in the future.

Is a shame though, feels like I've been putting the hours in for nothing. Im sure I'll thank myself down the line tho.

[northernladuk]

When you are out of work but don't have to worry about it you'll feel like you've hit the jackpot.

[SueEllen]

Is a shame though, feels like I've been putting the hours in for nothing. Im sure I'll thank myself down the line tho.

If you do a search you will find threads of posters who have been out of contract for a year. This is one of the famous threads on it.

Also the more contractors you meet the more you will hear stories of those who didn't work for a period of time due their own illness, a family member's serious illness, the fact they wanted to spend some time with their child(ren) or they went travelling.

In regards to not believing in pensions regardless of what you do make sure you have some savings or investments for retirement. A pension is just a wrapper for these with tax breaks, which is why lots of posters on here have a SIPP.

[Fred Bloggs]

If you do a search you will find threads of posters who have been out of contract for a year. This is one of the famous threads on it.

Also the more contractors you meet the more you will hear stories of those who didn't work for a period of time due their own illness, a family member's serious illness, the fact they wanted to spend some time with their child(ren) or they went travelling.

In regards to not believing in pensions regardless of what you do make sure you have some savings or investments for retirement. A pension is just a wrapper for these with tax breaks, which is why lots of posters on here have a SIPP.

100% agree, this is the first time ever I've been out of work, since December 2014 and no end in sight.