Do I legally have to leave the Tax and VAT in the limited company?

[JackD]

Hi All,

I know this isn’t advisable and the majority wouldn’t do it. But is it legally sound?

I’ve recently setup a limited co for outside work. I’d like to front run my dividend allowance and take out as much as possible for the first few months.

For easy math:
Monthly invoices paid: 10k + VAT.
Expenses: £1k
Monthly business account: £11k
Monthly VAT owed: £2k
Monthly Corp tax owed: £1.9k

Let’s assume there’s no other income, no other costs to the scenario.

There’s £11k in the account and I owe £3.9k in Tax and VAT.

Can I take out a mixture of dividends and salary for the full £11k in the short term and use future earnings to pay for the Tax and VAT?

Due to personal circumstances I’d like to take out as much as possible for the next few months, but don’t want to do anything illegal.

[malvolio]

You can but its a very bad idea. For one thing it's not your money. For another can you guarantee you won't spend it. For another how do you put it back without incurring a further tax liability on you or the Company.

HTH....

[Maslins]

You wouldn't be able to take it all as dividends, as they can only be from retained profit (ie after business taxes are accounted for).

You could take it as a director loan, but as malvolio says, it's a dangerous path, so proceed with caution (or, better, don't do it!).

[JHamp82]

Hi All,

I know this isn’t advisable and the majority wouldn’t do it. But is it legally sound?

I’ve recently setup a limited co for outside work. I’d like to front run my dividend allowance and take out as much as possible for the first few months.

For easy math:
Monthly invoices paid: 10k + VAT.
Expenses: £1k
Monthly business account: £11k
Monthly VAT owed: £2k
Monthly Corp tax owed: £1.9k

Let’s assume there’s no other income, no other costs to the scenario.

There’s £11k in the account and I owe £3.9k in Tax and VAT.

Can I take out a mixture of dividends and salary for the full £11k in the short term and use future earnings to pay for the Tax and VAT?

Due to personal circumstances I’d like to take out as much as possible for the next few months, but don’t want to do anything illegal.

Firstly, If you were to take salary then it go in your equation alongside expenses which will reduce corporation tax. Secondly, if you have 11k in the company and £3.9k liabilities then you are only entitled to £7,100. You aren't entitled to the remaining unless you take out a directors loan which must be returned within certain time to avoid any additional liabilities.

Finally, as others have said as well. This is dependent on future earnings which you cannot guarantee so a risky approach.

[WTFH]

A couple of questions:
1. Who is your accountant?
2. When you say you need to take it out "due to personal circumstances", what exactly are they? Is it related to an existing debt, is it to try to reduce your tax for next year, is it to buy some shiny toy that can't wait a day or two, is it something else?

Basing it on you saying you have recently set up the company and how you had a thread about a month ago where you were talking about starting contracting, I'm concerned that you may end up in a very bad place, hence my two questions

[NotAllThere]

I used to generate a P&L. If there was profit, I'd take that. Otherwise directors' loan every time. Understanding I have to pay it back in time or incur a tax charge.

[northernladuk]

Heed the warnings. I've seen a grown man literally crying when we all got canned at short notice at a large client. He was the one with the nice car, expensive mountain bike on the roof, took a day off to go queue for the latest apple products etc and bam., the income that was going to pay his VAT and CT bill suddenly disappeared. It happens. Unless it's life or death don't do it IMO

[jamesbrown]

Dividends not taken from distributable profits/reserves are so-called ultra vires or illegal, so not a good idea.

[JackD]

You can but its a very bad idea. For one thing it's not your money. For another can you guarantee you won't spend it. For another how do you put it back without incurring a further tax liability on you or the Company.

HTH....

I’m planning to spend it (pay off a debt). I don’t plan on putting it back and incurring tax, I was hoping to take out large dividends in the first few months, or pay myself for a few months upfront. Then after the first few months, take a lot less out and let the pot build in the company

[JackD]

A couple of questions:
1. Who is your accountant?
2. When you say you need to take it out "due to personal circumstances", what exactly are they? Is it related to an existing debt, is it to try to reduce your tax for next year, is it to buy some shiny toy that can't wait a day or two, is it something else?

Basing it on you saying you have recently set up the company and how you had a thread about a month ago where you were talking about starting contracting, I'm concerned that you may end up in a very bad place, hence my two questions

I have an accountant. I’m asking as I’d like to take far more out in the first few months than I intend to going forward. I’d like to pay off a debt I have as soon as possible to save on the interest.

My thoughts were to take out the max for the first few months, get my self straight and then drop down to a far more modest amount that will keep me in the lower tax bracket and let the pot build up in my limited co