What to do with retained earnings

[Romario]

Hi,

Any guidance would be much appreciated.

I stopped contracting about 5 years ago and have over £100K in retained earnings, all CT having been paid.

I am now in a PAYE job paying around £60K including bonuses and I salary sacrifice £18K a year into a workplace pension.

I'm wondering what I can do with the company retained earnings most efficiently:

- leave them be, and when I retire (say 10 years time at 60) draw a basic salary of £10K or so for however long to run down the funds

- wind the company up. I do no know what the financial implications of this are

- pay additional pension contributions into my workplace scheme from the retained earnings. My questions would be - would I get tax relief, would they be classed as an employer contribution, how much can I contribute?

Ultimately, I suppose, what I am asking is 'what should I do with the £100K just sat there?'.

Thanks in advance.

[northernladuk]

With that amount of money picking the wrong choice is going to cost you thousands. I'd be paying for session with an accountant to discuss the sitaution in detail. Can't cost more than a hundred quid or so and you've got specilist advice on the facts of the case. Asking us is getting a random guess on half a story.

In fact to cover two bases speak to Maslins/MVL Online. They a contractor accountancy as well as run an MVL company so he'll be able to advise on both of those aspects. If an IFA is needed I'm sure he'll be able to recommend one.

Give them a call and ask to speak to Hamish. If Hamish isn't available then ask for Chris.

[b0redom]

What NLUK said. Immediate thoughts are either MVL + ER, or dump the lot into your pension - although I guess it's too late now to claim back CT but you shouldn't pay any further tax on it.

[eek]

What NLUK said. Immediate thoughts are either MVL + ER, or dump the lot into your pension - although I guess it's too late now to claim back CT but you shouldn't pay any further tax on it.

I would have thought MVL and having £90k in cash trumps the other options.

A pension is going to be a hassle if you are already paying £18k a year into it. Better to use the £90k and salary sacrifice £40k. That £90k (as it's after tax) should allow you to do so for 5/6 years without a problem.

[Maslins]

I stopped contracting about 5 years ago and have over £100K in retained earnings

If this is the case I can't see you qualifying for business asset disposal relief (what was entrepreneurs relief) anymore. You could still liquidate, but would likely be looking at 20% personal tax.

It's one to discuss with your accountant, potentially with input from a financial adviser. Possible options:
- drip feed salary and/or dividends,
- big pension contributions,
- MVL,
- invest the £100k (still within the existing company), perhaps in BTL/funds/whatever. Ie make it become a part of your pension plan.

[northernladuk]

If this is the case I can't see you qualifying for business asset disposal relief (what was entrepreneurs relief) anymore. You could still liquidate, but would likely be looking at 20% personal tax.

It's one to discuss with your accountant, potentially with input from a financial adviser. Possible options:
- drip feed salary and/or dividends,
- big pension contributions,
- MVL,
- invest the £100k (still within the existing company), perhaps in BTL/funds/whatever. Ie make it become a part of your pension plan.

I doubt he has an accountant after 5 years. Hamish is still his best bet.

[adubya]

Hmmmm....

"Go large" on your permie pension contributions to reduce your taxable income which would allow you to take higher levels of dividends from your LtdCo ?

I'm not an accountant tho so just theorising badly. Get some professional advice.

[eek]

Hmmmm....

"Go large" on your permie pension contributions to reduce your taxable income which would allow you to take higer levels of dividends from your LtdCo ?

I'm not an accountant tho so just theorising badly. Get some professional advice.

Assuming dividend tax rates don't change that's even better than my original MVL approach

Put £40k in your pension via salary sacrifice and take dividends of £16000 or so and you take home pay will be identical.

[Romario]

Thanks adubya/eek,

By way of an update. I have pretty much topped up pension contributions at work to £40K. This has allowed me to increase the dividend from the company to around £20K. OK, I''ll be paying 7.5% tax on a large chunk of that (8.75% from 2022/3) but it seems the most hassle free/cost effective way to release the funds. I should be able to run the retained earnings dry in 5 or 6 years ceteris paribus.

Appreciation for everyone's wisdom!

[Lance]

Thanks adubya/eek,

By way of an update. I have pretty much topped up pension contributions at work to £40K. This has allowed me to increase the dividend from the company to around £20K. OK, I''ll be paying 7.5% tax on a large chunk of that (8.75% from 2022/3) but it seems the most hassle free/cost effective way to release the funds. I should be able to run the retained earnings dry in 5 or 6 years ceteris paribus.

Appreciation for everyone's wisdom!

5 or 6 years? With inflation going up?
You sure that's a good idea? Could easily cost you more in lost value than tax.

Just MVL and take the money as capital (20% on £87k) isn't terrible, and represents a taxable rate of c. 16%.

Or run it down by £40 today, £40k in April, into a SIP pension, then wind it up without any tax to pay.
Note that you'll exceed the pension limit so will get reduced tax relief on that. So ask an IFA for advice.