Limited Company - Most Efficient Release of Capital

[Joxer]

I'm seeking some advice on the most efficient way to get money out of my limited company.

As I've transitioned from a permanent role to contracting and have already earned £20,000+ (gross) in this permanent role this tax year I've been advised that the most tax efficient approach for 2010/2011 is to take capital from the business in the form of dividends only.

I've been trading for ~1 month and envisage trading for another 11 months, therefore trading activity will straddle two tax years. Expected earnings for this period (obviously not including VAT) would amount to ~£100,000.

As a guideline I envisage requiring funds in the region of £2,500-£3,000 net monthly for living expenses during the remainder of this 12 month period.

It's quite likely that I'll then take 6-9 months off to do some travel (where my net monthly income would need to be ~£1,250) and then return to the UK (most likely to continue contracting but perhaps to take a permanent role).

I appreciate that this is quite an open question but I'm keen to understand my options around using the earnings of my ltd company in a tax efficient manner to provide living expenses cashflows (both for the remainder of the 12 month trading period & the 6-9 month travel period) and also create as big a nest egg as possible with the remainder.

- What are peoples' thoughts on the best course of action?

- I've read up on Entrepreneurial Relief and it seems to be suitable to my situation and is clearly very tax efficient. Any thoughts? Any hidden gotchas that I've not noted?

- Although I'd like to get the money out of my limited company relatively quickly (rather in my personal pocket than the company's eh) I'm open to considering tieing up funds in the business through to future tax years if there's a compelling reason why this would be attractive financially. Any thoughts?

Thanks for your time and credit to the webmasters for a very useful site.

Joxer

[Wanderer]

It's worth running through this with your accountant to make sure you are doing it the right way but you have it pretty much correct, as far as I understand.

Pay yourself salary up to the tax free allowance (£6,475) and the dividends as required to live on. Retain money in the company if you can, especially if taking dividends would make you a higher rate tax payer.

When you leave the UK, you can shut down your company and apply for "ESC-C16" (Google it) which means any money retained in your company and not taken as salary or dividends can become a capital distribution so you pay less tax than you would by drawing dividends.


Good luck!