Question for a Tax champion - Contractor going Permy

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Geeting All,

I am currently a contractor and haven't removed a penny from my Ltd company(no salary paid). Half way through my contract, I have been offered a Perm job and now thinking about ways to get my money out -obviously in Tax efficient ways. Here is the situation:

1. I will start the perm job next month say September2010. (roughly 8 mnths to personal tax year end.)
2. I will surely be a higher rate tax payer. i.e. above the £37,400 band.
3. I might consider leaving the uk. (Is it worth removing the money when I leave the uk).

Couple of ideas throttling in my head :
(a) Leave the money in ltd company and remove it a year after leaving the uk. - Lower tax band ?
(b) Close the company. Donot know what this entails

Would really like your expert inputs!

Many thanks... C!

[NotAllThere]

How many contracts have you had? If this is the only one since you started contracting, bear in mind that you may not be able to claim travel and subsistence expenses.

I'd keep the money in the company, and draw it down as I needed it.

[slash]

How many contracts have you had? If this is the only one since you started contracting, bear in mind that you may not be able to claim travel and subsistence expenses.

I'd keep the money in the company, and draw it down as I needed it.

Hi this is my second contract. They have renewd my contract about two month ago and then decided to offer permy.
Is that an hmrc rule that on first contract u cannot claim travel?

[THEPUMA]

If you leave the UK and cease to be UK resident, you will be able to get any reserves out without incurring any UK tax. But of course you may have to pay tax in your new residential jurisdiction.

There is sometimes an opportunity to leave the UK, go on holiday to Barbados for 2 weeks then travel on to your new destination. If the company's residual funds are paid whilst you are in Barbados, you may be able to avoid tax entirely as you've left the UK, not arrived at your ultimate destination and not spent enough time in Barbados to establish tax residency.

But you need to check with accountants who can advise both on UK taxes and the tax system in your destination country with full details of timings etc to ensure you get it right.

If you end up not leaving the UK, it is normally best to do a capital dissolution. You should get the first £10K tax free and the balance at 10% or 28%. You would only get 10% if the company had traded for a year so if it is less than that, you may have to buy and sell some widgets on eBay for a few months.

Note that the effective tax rate on dividends is 25% unless you are a super higher rate taxpayer earning between £100K and £113K or over £150K so the marginal rate could be lower on dividends than a capital liquidation but not normally once you've taken account of the £10K tax free. To really optimise the position, if you haven't gone a year of trading, it may be best to dividend out all bar £10K then do a capital liquidation for the rest, but that is probably a bit OTT and the professional costs may outweigh the saving.

Puma

[THEPUMA]

Hi this is my second contract. They have renewd my contract about two month ago and then decided to offer permy.
Is that an hmrc rule that on first contract u cannot claim travel?

No but there is a rule that says you can't claim travel on your last contract.

Cheers

Puma

[NotAllThere]

I understood it that if you are a permy, go contracting with one client (different from the one you worked permy for, renewals irrelevant), then go to permie for a different client, then you can't claim expenses, as your contract wasn't in a series of temporary assignments.

There is a rule that if you use 'u' instead of 'you' (or other text message abbreviations) in these forums, you may incur some moderator wrath.

[cojak]

I understood it that if you are a permy, go contracting with one client (different from the one you worked permy for, renewals irrelevant), then go to permie for a different client, then you can't claim expenses, as your contract wasn't in a series of temporary assignments.

There is a rule that if you use 'u' instead of 'you' (or other text message abbreviations) in these forums, you may incur some moderator wrath.

WHS