How to stay below 40% tax band

[DrGUID]

Hi all,

I have a full time day PAYE job, but I also own a very small limited company which I started during the '01 dot com crash to sell some software I wrote while I was "resting". The company has a director (me), no staff and I've never run a payroll.

Due to the recovery in the IT industry I now find that my day job is bringing me very close to the 40% tax band. In addition, my small business is also starting to bring in some serious cash .

Up till now I have been taking money out of the business as dividends, but as this would take me over the 40% tax band I wondered if there was a better way.

I wonder if anyone has had a similar situation and had any thoughts about these strategies:

1. Pay a director's pension into my SIPP (although I already have a good employer's final salary pension).

2. Retain the small business profits and invest them in unit trusts or something. Then I could take dividends at a later date, or close the company and take the capital gains.

Is there anything else I can be doing?

Thanks!

[cojak]

ask an accountant is probably the best advice...

[ratewhore]

Not quite sure what the problem is. If you're doing well then surely you want to reap the benefits of that effort. If that means paying yourself in some way that takes you into the HR tax bracket then so be it.

All IMHO of course...

[moorfield]

I think a lot more of us may come to be in a similar position after income shi*ting kicks in ?

I'm reading up on VCTs at the moment, wondering whether to start clawing back some tax through a VCT investment in coming years (all this after pensions contributions and enough reserves for on the bench time though). On balance - just - I don't mind having some surplus money out of ltdco in a risky investment than in ltdco where Gordo is trying to get his mits on it. Maybe not the time for a VCT though until we're through the next recession.

[BrilloPad]

Hi all,

I have a full time day PAYE job, but I also own a very small limited company which I started during the '01 dot com crash to sell some software I wrote while I was "resting". The company has a director (me), no staff and I've never run a payroll.

Due to the recovery in the IT industry I now find that my day job is bringing me very close to the 40% tax band. In addition, my small business is also starting to bring in some serious cash .

Up till now I have been taking money out of the business as dividends, but as this would take me over the 40% tax band I wondered if there was a better way.

I wonder if anyone has had a similar situation and had any thoughts about these strategies:

1. Pay a director's pension into my SIPP (although I already have a good employer's final salary pension).

2. Retain the small business profits and invest them in unit trusts or something. Then I could take dividends at a later date, or close the company and take the capital gains.

Is there anything else I can be doing?

Thanks!

go offshore.

[TheFaQQer]

I'd leave the money in the business (or invest it as a business, if possible, without becoming an investment vehicle that incurs a different tax regime).

When the lean times come / redundancy / career break, then start paying dividends again.

Or just take the monmey now and pay tax on it, if you need it.

[Fred Bloggs]

Take a break and bask in your well earned glory.

[DrGUID]

Thanks for all your suggestions!

As soon as my mortgage is under control I think I'll cut down my day job hours worked - I used to work 4 days a week and it was lovely .

I'll also consider leaving spare cash in the business, as I've experienced first hand the ups and downs of this industry. Incidentally, I have done some more research and it turns out that keeping money in the business can be a bit of a complex issue. If the business ends up having more investment income than IT contracting income, then your company could get classed as an investment company, which have their own particular rules and regulations!

I also found that selftrade.co.uk will open trading accounts for companies, which could be a good place to move company cash into unit trusts.

[julian_sweet]

Pension

About the best way of avoiding the 40% legally is to stuff money into a pension (all tax deductible).

If your company has a good pension scheme AVC's might be an idea.

Does depend on your age much above 40 might not be worth it financially.

Also the stock market is a bit volatile at the moment.

Talk to an Independent Financial Advisor will know more than me.

[Alan @ BroomeAffinity]

Ask you accountant about a tax efficient remuneration strategy. Having said that if your accountant is any use he should already have been talking to you about this.

IMO, an accountant should not wait until you ask him for advice but should be proactive in helping your business. If you don't have an accountant then that might be difficult. I would have thought it to be a bit late for 2007/08 to do muich about it but sometimes you'll find an accountant willing to help you out even at peak times.