What do you do with excess funds in your business account?

**cojak** · 11 October 2019, 11:59

I take the usual amount of salary, pension and divis out.

Then I smell the winds of change and spot the window of opportunity, get a cushy permie job and MVL the old company.

Sorted.

**Grasser73** · 11 October 2019, 12:06

I take divis upto the higher rate limit and make hefty pension contribs. I like to start each new financial year with the absolute minimum in the company account.

**PerfectStorm** · 11 October 2019, 12:07

What I used to do was take up to the higher rate limit on day one of the tax year and put it in high interest current accounts (Santander 123 gave 3%, TSB gave 5% and so on)... there are no issues with you opening all of the accounts available and filling them up. It was a nice little earner.

However, as well as a lot of hassle (have to cycle money out and in on each one to keep them active) and awkwardness if anyone ever asks to see all your bank statements for a given period of time, it also means that the money was more 'available' to me, and thus, I feel, I spent it faster. No point earning 5% on a balance if you're burning through it at a rate of knots.

So now I keep it in Aldermore where it gets 1% or something tiny, but at least I'm thinking about each and every dividend payment that gets made.

**genius** · 11 October 2019, 12:47

Originally posted by PerfectStorm View Post

What I used to do was take up to the higher rate limit on day one of the tax year and put it in high interest current accounts (Santander 123 gave 3%, TSB gave 5% and so on)... there are no issues with you opening all of the accounts available and filling them up. It was a nice little earner.

However, as well as a lot of hassle (have to cycle money out and in on each one to keep them active) and awkwardness if anyone ever asks to see all your bank statements for a given period of time, it also means that the money was more 'available' to me, and thus, I feel, I spent it faster. No point earning 5% on a balance if you're burning through it at a rate of knots.

So now I keep it in Aldermore where it gets 1% or something tiny, but at least I'm thinking about each and every dividend payment that gets made.

Yes keeping it in my business account has kept me frugal, in a good way. The minute I pay myself a dividend it disappears, and I'm sure if I'd been making dividend pmts of £30k+ a year, I'd have no money now. Business savings account may be better suited to me for that reason.

**TheCyclingProgrammer** · 11 October 2019, 12:59

Nothing much. I finally got around to starting a regular pension contribution a year ago with a £10k lump sum and now pay £1k a month. I will make additional pension contribs as and when funds allow, but I have a 6 figure retained profit doing nothing much except sitting there waiting for a rainy day. I only take dividends at the higher rate if I need them.

**Paralytic** · 11 October 2019, 13:21

What do you do with excess funds in your business account?

I withdraw it in £50 notes and roll about on it on my bed, naked.

I'm sure I'm not the only one.

**GhostofTarbera** · 11 October 2019, 13:34

Originally posted by Paralytic View Post

I withdraw it in £50 notes and roll about on it on my bed, naked.

I'm sure I'm not the only one.

Yup, me to

Sent from my iPhone using Contractor UK Forum

**Jess inniAccounts** · 11 October 2019, 13:59

Originally posted by genius View Post

Since I started, I have taken almost nothing out of my business account. Salary and small dividends every year but not ever close to reaching the higher dividend tax threshold.

I'm starting to think this was a bad idea and at the least, I should take dividends every year up to the 50k 7.5% limit.

I'm interested in what anyone else on here does if they find themselves in a similar situation. Do you take dividends you don't need? Or leave it in the business? Or are there better alternatives?

And northernlad I've saved you a job so no need to contribute to this thread. Thanks

It's generally tax efficient to take a salary up to the NI threshold and then the rest of what you need to live on as dividends. You can then top a pension up, up to 40k tax free each year, if you've got cash sitting in your business account. Pension contributions will also reduce your Corp Tax bill. Contractor Salary: Choosing a Tax-Efficient salary in 2019/20

**WordIsBond** · 11 October 2019, 14:22

If you are just looking for savings that you won't spend, put money into a pension and save on Corporation Tax.

To be clear, you could be taking dividends up to the higher rate threshold and paying only 7.5% in dividend tax on them. You're not doing that because you would waste the money. The result is that you may end up with a huge tax bill when you do take the money out. So your financial indiscipline may cost you maybe a quarter of the money, over and above what your tax bill would have been, if you had taken the money out efficiently and invested it.

It's better to waste a quarter of it on higher taxes when you take it out than it is to waste it all now. So if that's what the choice is, you've probably done ok.

But the best choice going forward is undoubtedly to exercise some self-control, take the money out as tax-efficiently as you can, and invest it wisely.

Maybe you should lock it up in 5 year bonds or something. The rate of return is pathetic (probably well below inflation over the course of the bond), but at least you'll be getting the money out without paying swingeing taxes. If you do this every year, putting the extra dividends that you don't need into a five year bond, five years from now you are going to start having nice payouts every year. Maybe by then you'll have acquired enough self-discipline not to waste the money.

What do you do with excess funds in your business account?