Paying Ltd Company Dividend to Invest in a Personal ISA

[northernladuk]

Just playing devils advocate here but remember..

Company money belongs to the company. If you invest company money the profits will be a benefit to the company.

Company money is not your money.

I assume this is factored in to this discussion but we get many questions on here that forget this very important distinction. Just thought I would bring that one up again before we get a question about using company money to offset against personal mortgage, loans etc etc

[prozak]

Am I being daft? That paragraph makes no sense to me.

No you are not.

I don't think that article is very well written and that paragraph is just as poor. In fact even trying to understand what they are trying to get across looks suspect.

I think what they are trying to explain is that there is no 0% CT band for small companies.

[prozak]

Just playing devils advocate here but remember..

Company money belongs to the company. If you invest company money the profits will be a benefit to the company.

Company money is not your money.

I assume this is factored in to this discussion but we get many questions on here that forget this very important distinction. Just thought I would bring that one up again before we get a question about using company money to offset against personal mortgage, loans etc etc

Agreed.

But you need to plan as a whole.

The money should one day be yours..... just may take longer sometimes

[Joxer]

Craig is right on this one.

It is YOU who is taking the hit. Not the company.

You have up to 43875 to have in income this year until you start paying more tax on the dividend.

For this year tax is pretty simple. For most people the solution is:

i) Pay yourself a salary of at least £5,715.
ii) Increase this to £6,475 if your company’s profits
exceed £300,000.
iii) Pay any further sums you require as dividends

So is paying a dividend worth it to take the 25% hit?

I don't think so.

Santander Business Bank Account

2.75% for a 1 year Bond, from the first link I clicked on. Though has a high deposit limit. Alternatively switch your current account to Santander and get 5%.


Lets say you can get 3% interest tax free.

So to invest 5100 you need to pay yourself 6800.

At 3% compounded monthly it will take 115 months to get back to 6800.

If you earn .5% compounded monthly in your business account and lose 20% to tax. Then it will take 134 months to break even.

If you can manage a 2% before tax return for your company it then takes 249 months to break even.


Alternatively, others have discussed offsetting your company money against your own mortgage. This is a very grey area, so I have no advice on this.

Thanks for the real-life example mate, this is the debate I was keen to cultivate.

If you've already hit the £43,875 ceiling this year but take a long-term view and assume that in future years you may have the ability to get the funds out of the company (either via ESC C16 or dividend payments to bring total income up to the magical £43,875 cieling) then the ~2.8% return on ISAs doesn't provide a compelling investment case, even when compounding is factored into the equation.

If you're under the £43,875 ceiling this year am I right in saying it makes sense to declare dividends up to that ceiling amount and then take advantage of an ISA (...assuming you haven't sourced an investment opportunity which beats the rate of return)?

Cheers Prozak.

[Fred Bloggs]

Agreed.

But you need to plan as a whole.

The money should one day be yours..... just may take longer sometimes

If you are somewhere near to 55, I believe that investing from your Ltd Co into a SIPP is unbeatable myself.

[northernladuk]

Agreed.

But you need to plan as a whole.

The money should one day be yours..... just may take longer sometimes

But that is not true and why you have to be very clear on the distinction. Some of it is HMRC's, some of it is the VAT mans. You cannot invest their money without getting in to trouble like we see so many people here.

I am being pedantic here and I guess you probably knew that but thought I would say anyway.

[prozak]

If you're under the £43,875 ceiling this year am I right in saying it makes sense to declare dividends up to that ceiling amount and then take advantage of an ISA (...assuming you haven't sourced an investment opportunity which beats the rate of return)?

Yep. Crazy not to really.

You should always be taking out as much as you can that is most effective for your individual planning and circumstances. For some people this does mean taking the 25% hit. But for the specific question you asked it doesnt look worth it to me.

Remember the 43875 includes the dividend tax credit. And this amount will change next year, so don't assume you can take out the same amount of cash next year as well.

I think there is a calculator at ir35calc that lets you enter gross salary, net dividend, other income and it tells you how much tax you will pay.

[jimmyhosang]

So... What I would like to know is:

Can I move turnover from my bank account and into an investment (through my limited company) BEFORE corporation tax, then pay CT when I've realised the gains from my investment?

Therefore, if I lose money on my investments, then I pay less corporation tax, and vice-versa.

[northernladuk]

So... What I would like to know is:

Can I move turnover from my bank account and into an investment (through my limited company) BEFORE corporation tax, then pay CT when I've realised the gains from my investment?

Therefore, if I lose money on my investments, then I pay less corporation tax, and vice-versa.

Whatever the answer to this is don't forget you get taxed on the profits as well... twice.

If you are investing a substantial amount you may also have to reclassify your LTD to an investment co.

[imightbewrong]

So... What I would like to know is:

Can I move turnover from my bank account and into an investment (through my limited company) BEFORE corporation tax, then pay CT when I've realised the gains from my investment?

Therefore, if I lose money on my investments, then I pay less corporation tax, and vice-versa.

Nope. But you can offset reliased losses against profit for future CT calculations.

e.g.

year 1 - make 100K profit and move it all into an investment - pay c. £22K corp tax
year 2 - make 100K profit from contracting, sell investment and lose £10K - pay c. £19.8K corp tax