WARCHEST- best way to build it up

[Jog On]

I leave it in the company so I pay salary/business expenses/divs while benched.

[MrRobin]

The other option is to voluntarily bench myself whilst still paying sal+div until retirement.

A little way off that tho

[Mehmeh]

I'll only "suddenly" going to need the cash when I'm looking at buying a new house...which is coming. But not exactly a sudden thing.

Pensions....bluh... I'm 28 and don't trust that by the time I can get the money back (currently 55?) that there will be anything left. Plus I'm hoping to retire before 55. Am I being stupid on this?

A higher rate Business account + the possible Entrepreneurs' Relief could be interesting. Will have to speak to my accountants!

I'm just thinking that taking it out and having it in a higher interest account or an investment will be better than keeping it in. I've got to take it out eventually.

You have already paid around 20% corporation tax on the profit so the additional 22.5% is on top of that (roughly - the 10%tax credit changes things slightly). It may be worth paying if you'd like to take the money out and use it for other things.

How likely are you to suddenly need access to all of the money? If not likely then the 50% tax bracket shouldn't be an issue.

Have you thought about paying a chunk of the money into a pension? Then you could get back the Corp Tax you paid on it.

At the very least if you are keeping it in the company then I hope you have found a high earning business savings account (well - as high as you can get anyway...).

If you close your company at any point you might be able to take it all out at 10% with entrepreneur's relief - but only if you don't start up another similar company straight away.

[Support Monkey]

I leave it all in the business account so i can claim the max family tax credit

[psychocandy]

I leave it all in the business account so i can claim the max family tax credit

Talking of tax credit - I'm assuming dividend income counts as income for this? Surely. Last year in permie role I got the minimum amount but I'd given up any hope for this year. Although, its on my list to phone them but how do I give them an estimate of my income?

SM - Are you telling me that your just taking a small salary or something and zero dividends so you can get tax credit?

[northernladuk]

Pensions....bluh... I'm 28 and don't trust that by the time I can get the money back (currently 55?) that there will be anything left. Plus I'm hoping to retire before 55. Am I being stupid on this?

A higher rate Business account + the possible Entrepreneurs' Relief could be interesting. Will have to speak to my accountants!

Pensions are a moot point with some people thinking they are good some thinking they aren't. My take is that they are part of a portfolio so I don't have all my eggs in one basket. Putting money in to your pension reduces your Corp Tax so you save 20% on all the money you put in so another good way to get cash out of your company even if it does seem a long way off. Personally I would suggest you look in to it now while you can afford it. You can always freeze it when you settle down and have a family etc. Problem with pensions is too many people have put it off for too long which is one of the problems they are in a mess. It's for your future so up to you if you don't want to be comfortable in your old age and just spend it now. You can't escape the fact you are going to get old ... or die on the way. Either way a pension will help you or your nearest and dearest.

Have a read up on Entrepreneurs' Relief first. There are strings tied to it and you can't be doing it regularly. There is a possibility it won't be around for long either. There are plenty of threads on it. If you don't have that much spare in the account it shouldn't be too hard to get it out in the most effective manner.

[NorthWestPerm2Contr]

I am only in my second year of contracting so I am still way off where I want to be in terms of warchest. I am saving for a house on my own personal side (up to 40% max allowance) and the rest is staying in the business for the bad times (which I hope will never come). I doubt I will ever have trouble in taking money out as my wife has a lot of allowance. So for me the main task is getting up to the stage where a lot of you seem to be. I am not yet 28 so let's hope this upward slope continues.

I may take out a directors loan of 5k next year to help me with my deposit. So perhaps taking a loan out is one way of making use of your money in the short term?

[Support Monkey]

Talking of tax credit - I'm assuming dividend income counts as income for this? Surely. Last year in permie role I got the minimum amount but I'd given up any hope for this year. Although, its on my list to phone them but how do I give them an estimate of my income?

SM - Are you telling me that your just taking a small salary or something and zero dividends so you can get tax credit?

Dividend income counts, enter this as "other" income on the form, i take paye as minimum wage and then keep the dividends down but enough to live on for us.

it depends on what you need to survive in theory you could just pay the minimum wage and no dividend and rinse the system for all its worth.

[Wanderer]

Dividend income counts, enter this as "other" income on the form, i take paye as minimum wage and then keep the dividends down but enough to live on for us.
it depends on what you need to survive in theory you could just pay the minimum wage and no dividend and rinse the system for all its worth.

I thought you should always take dividends right up to your higher rate tax limit otherwise you lose that allowance?

[Greg@CapitalCity]

I am only in my second year of contracting so I am still way off where I want to be in terms of warchest. I am saving for a house on my own personal side (up to 40% max allowance) and the rest is staying in the business for the bad times (which I hope will never come). I doubt I will ever have trouble in taking money out as my wife has a lot of allowance. So for me the main task is getting up to the stage where a lot of you seem to be. I am not yet 28 so let's hope this upward slope continues.

I may take out a directors loan of 5k next year to help me with my deposit. So perhaps taking a loan out is one way of making use of your money in the short term?

Yes, taking out a Loan to help with something like buying a house is a great idea. If your company has the cashflow, there is no need to stop at £5k. Take £20k if you can afford to. Its a cheap source of finance for you if you are lucky enough to be in the position to do it. Two things to be aware of are;
(1) You need to pay interest on the loan if it exceeds £5k (currently 4% is the HMRC approved rate). However this is interest you are effectively paying back to yourself (through your own company), so the total net cost is the interest rate x the corp tax rate. In this case 4% x 20% = 0.8%. So a very cheap source of finance;
(2) If your loan is outstanding more than 9 months after the year you take it, your company will pay 25% of the outstanding loan balance as a form of temporary tax through the Corp Tax regime. This is where the good cashflow comes in. If you can afford to take this hit, then great. The 25% tax charge is repaid to you once the loan is repaid (or written off to a dividend or capital gain payment if/when you close the business down).

Worth giving some thought to anyway.