Hi,
This is my first post, but I did a search and can't find an answer to this question or a similar question already.
I've been offered the option to go permie with my current client, but there's a long lead time on it, like it's now January and we're talking about it being in Sept. In the meantime my contract will be extended and I'll continue working through my limited company until then.
Personal tax year ends in April as I'm sure we all know, and I take dividends through the year such that I go marginally into the 40% tax bracket each year.
So initially I'm thinking that I could reduce my dividend for the next 3 months, Jan - Mar, in order to avoid that first tax hit.
Following that, I'd be looking at an MVL to wind up the company. Assets will be far in excess of the 25k limit for the informal winding up, I've not run the numbers exactly, but probably looking at over 100k, perhaps 120k.
My thinking at the moment is that if I can lower my dividend pay from Apr - Sept to the minimum I can survive on, then the remainder will attract lower tax through the MVC.
Actually, scratch that, perhaps I should try to target hitting exactly
Dividend Tax Rate - 7.5% on earnings up to £33,500
I've also got ongoing PAYE obviously, partly in order to continue hitting NI contribution thresholds. But the entirety of that PAYE is then paid into a personal pension.
Which the company account contributes to directly as well.
Is aiming to pay
(dividend+paye-private pension contribution) = £33,500 + personal allowance
by Sept the correct approach to minimise tax paid?
Perhaps not, because then Sept - Apr 2020 will be paid as PAYE, and if I've exhausted my allowance and lower tax band, then the entire income will be pushed into the upper tax bracket.
So perhaps what I'm best paying myself from Apr - Sept is;
(dividend+paye-private pension contribution) = £minimum possible.
Then assuming I have some lower tax bracket left post Sept, the PAYE will fall into that, and the increased monies that were left in the company will be taxed as capital gains at 10%.
In terms of how much I could potentially reduce my dividends by, probably about 10k between now and Sept without crippling myself. Which then falls into the 10% bracket instead of being pushed into the 40% bracket. Saving about 3k in tax then, by the time the smoke clears and everything settles down after Apr 2020.
I don't have exact details of the PAYE I'll be receiving after going permie, but it'll be in the region of £70k gross/annum (or it won't be happening at all). Which means that approx half a year will be paid in the tax year 19/20.
There is an option to increase the contributions, possibly starting at the end of this month, I think that the 40k limit would stop me pushing all the assets into the pension anyway, and even if they didn't I don't want to do that.
For a final wrinkle, there is a directors loan outstanding, it's correctly reported to HMRC, I correctly charge interest on that loan, and annually I fill in the correct paperwork to claim back the tax that was initially surrendered to HMRC for that loan. I'm not quite sure how that loan would be converted when the MVL executed. Perhaps the simplest thing to do would be to take out a short term loan, repay the loan to the company and reclaim the tax from HMRC, and then the funds will come back to me via the MVL and I pay off the short term loan.
Hmm, that was quite long and rambling, sorry. Anyone got any relevant thoughts on how best to proceed?
This is my first post, but I did a search and can't find an answer to this question or a similar question already.
I've been offered the option to go permie with my current client, but there's a long lead time on it, like it's now January and we're talking about it being in Sept. In the meantime my contract will be extended and I'll continue working through my limited company until then.
Personal tax year ends in April as I'm sure we all know, and I take dividends through the year such that I go marginally into the 40% tax bracket each year.
So initially I'm thinking that I could reduce my dividend for the next 3 months, Jan - Mar, in order to avoid that first tax hit.
Following that, I'd be looking at an MVL to wind up the company. Assets will be far in excess of the 25k limit for the informal winding up, I've not run the numbers exactly, but probably looking at over 100k, perhaps 120k.
My thinking at the moment is that if I can lower my dividend pay from Apr - Sept to the minimum I can survive on, then the remainder will attract lower tax through the MVC.
Actually, scratch that, perhaps I should try to target hitting exactly
Dividend Tax Rate - 7.5% on earnings up to £33,500
I've also got ongoing PAYE obviously, partly in order to continue hitting NI contribution thresholds. But the entirety of that PAYE is then paid into a personal pension.
Which the company account contributes to directly as well.
Is aiming to pay
(dividend+paye-private pension contribution) = £33,500 + personal allowance
by Sept the correct approach to minimise tax paid?
Perhaps not, because then Sept - Apr 2020 will be paid as PAYE, and if I've exhausted my allowance and lower tax band, then the entire income will be pushed into the upper tax bracket.
So perhaps what I'm best paying myself from Apr - Sept is;
(dividend+paye-private pension contribution) = £minimum possible.
Then assuming I have some lower tax bracket left post Sept, the PAYE will fall into that, and the increased monies that were left in the company will be taxed as capital gains at 10%.
In terms of how much I could potentially reduce my dividends by, probably about 10k between now and Sept without crippling myself. Which then falls into the 10% bracket instead of being pushed into the 40% bracket. Saving about 3k in tax then, by the time the smoke clears and everything settles down after Apr 2020.
I don't have exact details of the PAYE I'll be receiving after going permie, but it'll be in the region of £70k gross/annum (or it won't be happening at all). Which means that approx half a year will be paid in the tax year 19/20.
There is an option to increase the contributions, possibly starting at the end of this month, I think that the 40k limit would stop me pushing all the assets into the pension anyway, and even if they didn't I don't want to do that.
For a final wrinkle, there is a directors loan outstanding, it's correctly reported to HMRC, I correctly charge interest on that loan, and annually I fill in the correct paperwork to claim back the tax that was initially surrendered to HMRC for that loan. I'm not quite sure how that loan would be converted when the MVL executed. Perhaps the simplest thing to do would be to take out a short term loan, repay the loan to the company and reclaim the tax from HMRC, and then the funds will come back to me via the MVL and I pay off the short term loan.
Hmm, that was quite long and rambling, sorry. Anyone got any relevant thoughts on how best to proceed?
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