Taper relief withdrawn

[dude69]

Must admit I didn't know a lot of contractors were closing their businesses every 3 years. Of course, you'd have to be between contracts to do that. Also it's debatable as to whether you'll have made more money extracting the cash and investing it in the stock market.

The difference compounded over 3 years between 8% and 5% is not big enough compared to a 15% difference in tax. After 3 years, the 40% taxed would have caught up to the 24% taxed option BEFORE it starts getting interest....

And the risk-adjusted value of lower risk, lower taxed, option is higher I guess, compared to stock market volatility

[hugebrain]

So, If we have to close down by April what happens to the money from the last two years? Do we have to extract that via dividends before we close the company because it hasn't "tapered" enough yet.

[Andy2]

what if you keep the money in company for a few years and after that stop working and retire ,
in that case can you continue withdrawing 36k/yr for a few years which will not attract high rate tax

[DimPrawn]

Still not convinced that the money that you save in tax by leaving the cash in a poor interest paying business account will be better than if you extracted the money and put it in the stock market. As others have said, you can't close down your business every 3 years or else HMRC won't be happy. If you leave retained profit in for 10 years, I'm extremely doubtful that you'd be better off leaving it in the business.

Cater Allen business account:

Reserve Account (£ GBP) - Interest Rates (% p.a.)

Balance
Gross % p.a.*
AER%**

£500000+
5.250
5.38

£100000+
4.800
4.91

£50000+
4.700
4.80

£25000+
4.600
4.70

£10000+
4.400
4.49

£5000+
3.100
3.14

[max]

Must admit I didn't know a lot of contractors were closing their businesses every 3 years. Of course, you'd have to be between contracts to do that.

That is wrong.

Agencies have no problem issuing new contract to new ltd co.

I've done it.

Also it's debatable as to whether you'll have made more money extracting the cash and investing it in the stock market.

That is wrong.

The stock market it not a one way street! Ask northern rock shareholders. £12 at the start of year!

[Redistou]

building up money in a ltd co?

You've got me worried now - Im into the second year on a limited company and was only paying out income and divs below the 40% personal tax bracket - I figured it would be fine to leave the money in the company and work with it there for capital growth - on a lean year I would be able to continue paying myself similar amounts from capital and on good years continue to build it up. I dont need more personal income than that at the moment but dont know what the future will bring.

Am I doing something strange/inefficient? Im getting about 8% on my company held cash.

[max]

So, If we have to close down by April what happens to the money from the last two years? Do we have to extract that via dividends before we close the company because it hasn't "tapered" enough yet.

The capital relief is "tapered"...so would be worth speaking with your accountant on the best way to handle.

Gut feeling...you missed that boat..but as it was only for 2 years...so no big deal. 18% is better than dividends. Rough guesstimate 1/2 of you'd pay if you take as dividends.

And it has the advantage that you know where you stand. With BATR...you never knew it would be granted.

[dude69]

Cater Allen business account:

Reserve Account (£ GBP) - Interest Rates (% p.a.)

Balance
Gross % p.a.*
AER%**

£500000+
5.250
5.38

£100000+
4.800
4.91

£50000+
4.700
4.80

£25000+
4.600
4.70

£10000+
4.400
4.49

£5000+
3.100
3.14

Is that supposed to be good?

Alliance & Leicester
Commercial Bank Business Instant Reserve
Deposit Account Issue 4 (Balance over £250k) 6.00%
Alliance & Leicester
Commercial Bank Business Instant Reserve
Deposit Account Issue 4 (Balance from £50k to £250k) 5.68%
Alliance & Leicester
Commercial Bank Business Instant Reserve
Deposit Account Issue 4 (Balance under £50k) 4.95%

[IR35 Avoider]

18% is better than dividends

Maybe, if you're a higher rate tax-payer when you take the money.

Over three years ending next year I'm extracting as dividends 80K that's been in the company since before IR35 was invented. I will pay no tax on this as it will fall in my basic rate band. So in my case paying dividends is cheaper than paying any CGT at all.

The point someone made about how the money is invested in the meantime is wrong; the company can invest money in more or less the same way an individual can. (There are some slight differences in products available, levels of charges and levels of taxation, but they don't change the overall picture.)

[ASB]

Over three years ending next year I'm extracting as dividends 80K that's been in the company since before IR35 was invented. I will pay no tax on this as it will fall in my basic rate band. So in my case paying dividends is cheaper than paying any CGT at all.

But the company has already paid full CT on it. What you really mean is you personally will pay no extra income tax on it which is a different thing.

Key thing is, IMO, to ensure one uses all the nil and standard bands before considering whether accumulation in the corporate regime and capital payments are appropriate. Ultimately not using these bands means you only pay the same or more tax overall at extraction.