Re: well it's your choice, mailman
I'm trying (unsuccessfully) to follow this discussion.
How exactly does one leave money in a company and build it up?
My company had some retained profits on which tax has already been paid. Previously this was a good thing since I could use this money for development and hopefully make profits on it in the future. But this retaining money in the company, far from being encouraged is now being penalized.
For example:
1. You have already paid around 20% corporation tax and 17.5% VAT. If you take the profits as dividends and spend the money then there is no more tax to pay.
2. If you have paid around 20% corporation tax and 17.5% VAT and left the money in the company to try and develop future profits. You successully do this and make, say 10% profits on the money left in. Then when you pay all the profits out as dividends and you are hit by another 19% tax. This wipes out all the advantage you had from building up your company and more.
And this is portrayed as somehow encouraging businesses to leave money in? Either I am being totally lied to or I've misunderstood this in some way.
Isn't this a major disincentive for companies to grow?
If someone wants to retain money in the business, but might be caught by IR35, then they would pay 40% income tax, 13% National Insurance, 17.5% VAT, 19% dividends tax (+ more if their expenses exceeded 5% of earnings). This sounds like a lot!
Can you explain this a bit more, or provide some links to some official sources for this? I am confused!
Also, is there some practical way around this. For example, can I take the money out as dividends and then immediately loan it back to the company so that I can build up the company without being hit by the extra taxes. Would my accountant have to declare this as a tax avoidance scheme under the new rules?
Hugebrain
I'm trying (unsuccessfully) to follow this discussion.
How exactly does one leave money in a company and build it up?
My company had some retained profits on which tax has already been paid. Previously this was a good thing since I could use this money for development and hopefully make profits on it in the future. But this retaining money in the company, far from being encouraged is now being penalized.
For example:
1. You have already paid around 20% corporation tax and 17.5% VAT. If you take the profits as dividends and spend the money then there is no more tax to pay.
2. If you have paid around 20% corporation tax and 17.5% VAT and left the money in the company to try and develop future profits. You successully do this and make, say 10% profits on the money left in. Then when you pay all the profits out as dividends and you are hit by another 19% tax. This wipes out all the advantage you had from building up your company and more.
And this is portrayed as somehow encouraging businesses to leave money in? Either I am being totally lied to or I've misunderstood this in some way.
Isn't this a major disincentive for companies to grow?
If someone wants to retain money in the business, but might be caught by IR35, then they would pay 40% income tax, 13% National Insurance, 17.5% VAT, 19% dividends tax (+ more if their expenses exceeded 5% of earnings). This sounds like a lot!
Can you explain this a bit more, or provide some links to some official sources for this? I am confused!
Also, is there some practical way around this. For example, can I take the money out as dividends and then immediately loan it back to the company so that I can build up the company without being hit by the extra taxes. Would my accountant have to declare this as a tax avoidance scheme under the new rules?
Hugebrain
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