Keeping money in the company vs dividends

[Rik1087]

Thank you all for the opinions. Majority stating leave it in the company and only take out what you need.

I have probably been following @perfect Storm’s approach and view that it needs to come out eventually, why not get it out now (up to the tax bracket) and invest it. For me this has been ISA’s - but completely agree it’s very easy to p!ss that up the wall once it’s out and easily at your fingertips.

some really good advice, and will happily change stance based on more seasoned contractors who know the pitfalls. Will probably look to stop taking out every spare penny now and only take out what I need to meet the bills etc - good news is I’ve just been extended for a further 6 months from yesterday so perfect time to focus on that option.

[northernladuk]

good news is I’ve just been extended for a further 6 months from yesterday so perfect time to focus on that option.

Interesting situation to crystalise the advice you've been given. Where would you be if you hadn't been extended and don't get work until January? Nice to get an extention but should always plan for not getting one and not getting work for 6 months. If you can breeze that then you are lauging but it's plan many new contractors (and some more seasoned) don't consider until it hits the fan.

[Rik1087]

northernladuk good point, but I have been accumulating my war chest outside of the limited, have just shy of 6 months put by across 2 ISA’s. However, they’re easy access, and therefore at risk of me touching it easier than whether it was in the company.

[northernladuk]

northernladuk good point, but I have been accumulating my war chest outside of the limited, have just shy of 6 months put by across 2 ISA’s. However, they’re easy access, and therefore at risk of me touching it easier than whether it was in the company.

We've a poster on here that did that then spunked it on a house and had a very torrid time for a bit after. I know people that have got in trouble with warchest outside the business but not one single person that has with the warchest in. Good you've got one but don't kid yourself you won't touch it.

[CheeseSlice]

I’m reducing the effect of inflation by putting company cash into some different savings products for business.
I have some 1 yr bonds that I’m rotating into higher interest rates, and the rest in instant savings (at lower rates) for unexpected downtime.
Many business savings accounts are FSCS protected similar to personal savings accounts too, protecting £85k of savings.
I avoid keeping company cash in accounts earning 0% unless it’s for taxes, bills and salary.

[BigLadFromBeeston666]

It's worth remembering that inflation is at ~10% in this country at the moment. So £100k sat in your war chest will effectively be worth £90k next year.

As others have mentioned, the psychological security of having a war chest is a non-commercial variable you have the factor in.

Personally, here's what I do:

Business funds

• Pay full dividends to both shareholders at very start of tax year
• Set the monthly salaries
• Max SIPPs as much as possible (SIPPs have an allowance of £60k this year - likely to be abolished when Labour get in)

Personal funds

• Put as much into S&S ISAs as possible
• Max premium bonds that functions as a war chest (3.7% interest atm, savings not taxed + chance to win a million, Rodney!)

If it's looking like a leaner year, I'd reduce the SIPP contributions. Keeping lots of money in the business being eroded by inflation doesn't seem financially prudent to me.

[youngguy]

This is a 'problem' I have long thought about (as my previous posts prove).

I think a lot comes down to attitude to risk and whether one tries to speculate to accumulate. Up until now I chose to leave surplus in the business account, largely to not pay tax on money I had no need to spend right now and as NLUK said, to build the watchest.

Rightly or wrongly I never pushed myself to get a BTL (wrongly) and I didn't have the skill or desire to try and turn money into bigger money via stocks (rightly) .

I maxed out my SIPP (still do) and figured the rest of the watchest could take me through lean times or months/years off (never been brave enough, make work hay when the sun shines has won out).

Two things are other factors I now think about. Firstly I am on an inside role, and I keep myself under the personal allowance threshold via reduced days and maxing pension contributions. The second issue I haven't had to consider much in the last ~20 yrs is inflation. I'm seeing what happens in the next 12 months but this might be what makes me take some out and invest/spend. I don't like the thought of 'paying' 40% for this but possibly better that than lose 10% and have absolutely nothing to show for it.

Might be time for a Porsche.....

[Lance]

It's worth remembering that inflation is at ~10% in this country at the moment. So £100k sat in your war chest will effectively be worth £90k next year.

As others have mentioned, the psychological security of having a war chest is a non-commercial variable you have the factor in.

Personally, here's what I do:

Business funds

• Pay full dividends to both shareholders at very start of tax year
• Set the monthly salaries
• Max SIPPs as much as possible (SIPPs have an allowance of £60k this year - likely to be abolished when Labour get in)

Personal funds

• Put as much into S&S ISAs as possible
• Max premium bonds that functions as a war chest (3.7% interest atm, savings not taxed + chance to win a million, Rodney!)

If it's looking like a leaner year, I'd reduce the SIPP contributions. Keeping lots of money in the business being eroded by inflation doesn't seem financially prudent to me.

southern water bonds yield 31% at the moment... Just a thought.

[rashm2k]

The best solution IMO is to keep the money in the ltd company, take out the ~50k in dividends and salary every year, but the keep the rest and put them into a commercial property.

That's better than a warchest, putting say 200k/300k into a commercial property with a 10% yield would get you 20/30k to live, that's at least a 6 month warchest, at the same time it's a pension plan and you also get capital appreciation and are beating inflation.

[eek]

The best solution IMO is to keep the money in the ltd company, take out the ~50k in dividends and salary every year, but the keep the rest and put them into a commercial property.

That's better than a warchest, putting say 200k/300k into a commercial property with a 10% yield would get you 20/30k to live, that's at least a 6 month warchest, at the same time it's a pension plan and you also get capital appreciation and are beating inflation.

Take it you aren’t a commercial surveyor because believe me that’s a crap idea…