Too much money in the bank...

[contractor79]

Hi everyone

I've been contracting under my limited company for 18 months now and the money is starting to pile up there. I have not yet paid myself in salary + divs enough to be in the higher tax band. So the money just piles up in the company account after I've paid all expenses and some pension.

Now I didn't mind this at first. It's nice to know that I can still pay myself out of there if I'm out of contract for a few months. But enough is enough. It's frustrating seeing it all pile up there and me not touching it. I am concerned that if I take money out of there more then I do I will be hit with more taxes. It's not essential I take the money out, would just be nice.

Should we be careful not to keep too much in there- if I decide to go perm then will there be serious tax implications if I close down the company and take the cash i.e. might as well I take the money out now and take the hit and invest somewhere decent instead of paying the tax later after just seeing this money grow at bog standard interest rate?

Would be interested in your thoughts, thanks.

[SueEllen]

Before you post use the search button and put in different terms.

There have been lots of discussion on how to take money out of the company account.

[ASB]

Take enough to ensure you use all the basic rate band - as you say above that there is more tax to pay. If you have a partner or similar sell them some shares to do the same (of course having made up your own mind about the implications of income shifting / S660).

Beyond that you have 3 choices.

1) Draw the cash and pay the tax accepting that you are in tohe top 5-10% of earners and possibly shouldn't be whining - especially given if you are efficient as to how you do it you will still be paying in total roughly half of what a permie earning about 70% of the usual rate would be.
2) Accumulate and maybe avoid the tax on closedown under esc16.
3) Ascertain your views on risk and consider exploiting a double taxation agreement. Again consider your own views on the merits or otherwise of BN66.

Of course if you feel particularly strongly that the tax you need to pay is excessive donte the excess to chariity. It is after all a chargeable expense and will reduce your taxable profit accordingly.

[moorfield]

If you're prepared to take some medium/long-term risks with your excess cash, have a look at investing in a VCT as you can claw some tax back via that route.

Otherwise start with the usual routes...
- income splitting (while you can)
- pension contributions
- sell your stuff to ltdco (books, computers etc.)

[contractor79]

thanks guys, a few points:-

VCT- is that something to do with venture capitalists. I've never considered all of that, sounds interesting.

pension- I feel I do give a lot into pension already (16% of contract income). Does anyone put more?

charity- I do give regularly to numerous charities, is it best to do this from company account then instead of personal so that I can reduce cash in the company rather than from my personal bank account?

bn66 and esc16, no idea what they are but I'll try and search the forum to find out more but a quick summary from someone would be useful

I don't mind the cash sitting in company account but it's only going to start reducing if I get out of contract. I just think the interest on it is poor and barely covers inflation, seems a waste to just keep it there. Would prefer to put it into funds or property.

thanks

[BrilloPad]

Did I say "get divorced" yet?

[oraclesmith]

I just think the interest on it is poor and barely covers inflation, seems a waste to just keep it there. Would prefer to put it into funds or property.

You should at least have it in a proper company high interest account; for example I use Close Brothers (Diamond Account) or there is also Cater Allen and similar. It sounds like you use a regular bank deposit account which are really only for working reserves.

Of course your company can always invest in stocks and shares (not ISA obviously) including property funds etc.

[contractor79]

You should at least have it in a proper company high interest account; for example I use Close Brothers (Diamond Account) or there is also Cater Allen and similar. It sounds like you use a regular bank deposit account which are really only for working reserves.

Of course your company can always invest in stocks and shares (not ISA obviously) including property funds etc.

really? well that sounds good and would be what I would prefer i.e. stock and shares more than a deposit account

[Bumfluff]

Hi everyone

I've been contracting under my limited company for 18 months now and the money is starting to pile up there. I have not yet paid myself in salary + divs enough to be in the higher tax band. So the money just piles up in the company account after I've paid all expenses and some pension.

Now I didn't mind this at first. It's nice to know that I can still pay myself out of there if I'm out of contract for a few months. But enough is enough. It's frustrating seeing it all pile up there and me not touching it. I am concerned that if I take money out of there more then I do I will be hit with more taxes. It's not essential I take the money out, would just be nice.

Should we be careful not to keep too much in there- if I decide to go perm then will there be serious tax implications if I close down the company and take the cash i.e. might as well I take the money out now and take the hit and invest somewhere decent instead of paying the tax later after just seeing this money grow at bog standard interest rate?

Would be interested in your thoughts, thanks.

Or pay your corp tax early, HMRC give a decent rate on early corp tax payments.

[NickFitz]

Did I say "get divorced" yet?

No, but you will