A bit complicated tax dilemma ..

[DrX]

Hi,

Would appreciate your advice on this possible upcoming personal tax dilemma. I've been working through my ltd as a locum doctor since Feb 2012 (50% shares with wife who has no other resources). Likely I will be going on permanent contract in Aug 2012 in the same hospital I'm locuming for at present. (purely for self professional development, big sacrifice money wise though !). So basically my financial year will be split half way in two different categories (ltd and PAYE). So just wanted to make sure all is well orgnised prospectively in terms of getting most of the money out of the company; and not to be caught by any HMRC investigation later.

My estimation for my total income for the whole year would be:

1- LTD: as a director I'm getting paid basic salary of £7044 (approx £580 monthly) plus dividends. So income through ltd: £2350 (salary) + £15000 (dividends) = £17350. (from Apr -Aug 2012)
2- Permi job (from August, estimation only): £34000 (Aug till Mar 2013 salaries as PAYE).

So I'm estimating a total income of £51350 (few grands above higher tax threshold £51350 - £34370 = £16980). I wonder would it be advisable to increase my salary in ltd and pay some 20% income tax (plus NIC !) rather ending up paying 40%? Or shall I reduce dividends and leave some money in the company for next financial year? Any other thoughts? (Wife's income will be approx £22000 from basic salary + dividends)

Many thanks.

[northernladuk]

Do you have a pension via your LTD? You could put some in to that which reduces your CT as well so double bonus?

[psychocandy]

Hi,

Would appreciate your advice on this possible upcoming personal tax dilemma. I've been working through my ltd as a locum doctor since Feb 2012 (50% shares with wife who has no other resources). Likely I will be going on permanent contract in Aug 2012 in the same hospital I'm locuming for at present. (purely for self professional development, big sacrifice money wise though !). So basically my financial year will be split half way in two different categories (ltd and PAYE). So just wanted to make sure all is well orgnised prospectively in terms of getting most of the money out of the company; and not to be caught by any HMRC investigation later.

My estimation for my total income for the whole year would be:

1- LTD: as a director I'm getting paid basic salary of £7044 (approx £580 monthly) plus dividends. So income through ltd: £2350 (salary) + £15000 (dividends) = £17350. (from Apr -Aug 2012)
2- Permi job (from August, estimation only): £34000 (Aug till Mar 2013 salaries as PAYE).

So I'm estimating a total income of £51350 (few grands above higher tax threshold £51350 - £34370 = £16980). I wonder would it be advisable to increase my salary in ltd and pay some 20% income tax (plus NIC !) rather ending up paying 40%? Or shall I reduce dividends and leave some money in the company for next financial year? Any other thoughts? (Wife's income will be approx £22000 from basic salary + dividends)

Many thanks.

OK. Actual amount before you pay the 40% tax is actually around £42K - you forgot to take into account the personal allowances. Unfortunately, if you personally earn over this you're going to pay 40% be it from first salary, permie salary or dividends.

If you pay all the dividend money out, like you said, you're going to have to pay 40% on that. On the plus side, your missus will only pay tax on about half of the £15K she gets in dividends.

Other option as NLUK is either to not pay any dividends or stick it in a pension. But then you're wasting your wifes tax allowance for this year.

Personally, Id take the div. Your only about 9K over which is under £1800 extra. (although I cant be arsed to work out the grossed up div amount!)

And of course, you're wife is saving by paying zero tax on her first £7800 or whatever it is (saving £1600 or so). And then standard rate on the rest.

[ASB]

If you actually need the money to live just pay the dividend. It's cheaper than suffering the NI though will as you not push you into the higher rate band. If you don't need to the money just leave it in the company.

You will have to consider at some point what to do with the company retained funds. You would appear to be a higher rate payer from the locum salary so this limits your choices. Any dividend paid will be taxable to "top up the tax". You could consider a company pension and corporate contributions, though the tax treatment will then depend upon whether you can carry back the contributions to a previous year or you can only carry forward. It might be better to make contributions in this tax year where you have trading income to offset.

Other than that you will probably be looking at winding the company up, though this has changed a bit and is now more expensive, so it all really depends on how much is there.

[DrX]

Any thoughts on the new junior ISAs? I have two kids and sounds more sensible to pay them the money I would've done to the tax man? I gather there's a limit of £3600 per tax year which can be paid into a jISA, so 3600X2 = £7200 (tax-free!!). I am not sure how to work this out but I understand this would be deducted from my salary which means more NIC payments eventually? or can I pay it from dividends?

In terms of pension, can I pay contributions into my NHS pension "pot" via ltd? or are there any regulations in terms of what pension can be regarded as a "company pension"?

Much appreciated.

[TheFaQQer]

Could you not declare the dividend, but waive your right to receive it? That way, you wouldn't go over the 40% threshold, and you can pay the dividend to your wife anyway.

Talk to an accountant about it - if you can do it that way, that's what I'd do.

[northernladuk]

Talk to an accountant about it - if you can do it that way, that's what I'd do.

I was trying not to give that advice for a change

[rd409]

Could you not declare the dividend, but waive your right to receive it? That way, you wouldn't go over the 40% threshold, and you can pay the dividend to your wife anyway.

Talk to an accountant about it - if you can do it that way, that's what I'd do.

That might be a very complicated issue, and the taxman might see this as an arrangement to avoid tax. Talk to you accountant first about this, and make sure you understand the risks involved. I cannot stress this enough.

[ASB]

Any thoughts on the new junior ISAs? I have two kids and sounds more sensible to pay them the money I would've done to the tax man? I gather there's a limit of £3600 per tax year which can be paid into a jISA, so 3600X2 = £7200 (tax-free!!). I am not sure how to work this out but I understand this would be deducted from my salary which means more NIC payments eventually? or can I pay it from dividends?

In terms of pension, can I pay contributions into my NHS pension "pot" via ltd? or are there any regulations in terms of what pension can be regarded as a "company pension"?

Much appreciated.

ISA doesn't help. It's the growth that is tax free, you don't get tax back on the contributions. The funding is from after tax income.

If you want to get tax relief on investments made look at VCT's and the associated high risks.

I am sure the NHS pension scheme will tell you what contributions they will accept and from what sources. Ask them. However it is unlikely they will accept contributions from your ltd, they may accept personal contributions from your net though.

There is nothing whatsoever stopping your co setting up it's money purchase pension scheme for you. It's trivial. You can have more than one pension.

Also the following may be possible (whether it's wise or not is a different matter).

1) Set up a stakeholder with somebody
2) Corporate contributions into your chosen funds - cash, index tracking, whatever you want
3) Transfer out to NHS pension - assumingNHS pension will accept a tranfser in from a stakeholder. They might, they might not.

[psychocandy]

I was trying not to give that advice for a change

I think OP needs some professional advice deffo.