Company retained profit in the long term

[northernladuk]

Thanks, I'll accept that as your way of saying I'm right and you're wrong.

Thanks again

I am not saying either. It is a tool to be used sparing at the right time with a certain element of pushing the envelope. In the right situation it is a (pretty) safe option and easily arguable to be valid. It's you that's writing it all off as morally wrong. There is so much grey stuff in most of HMRC's rules, many of which we use without a thought as it is 'the norm', wife as a tax mule, 24 month rule and so on, this is just another weapon in the arsenal to be used if the opportunity presents itself.

Don't phoenix your company but at any breaks think about closing it down. Going back on topic I am absolutely certain there will be plenty of opportunity to close your business down in the 30 years the OP is talking about.

[JoJoGabor]

Great idea. Not sure why I haven't thought of doing this calc myself.

Would be interested in developing this spreadsheet further to take into account taking a pension at 55. Because the closer you are to 55, the better whacking it in that looks. Perhaps pm me with your email and will look at knocking one up.

I cant find the actual spreadsheet, but only a post on here from a few years back. Its a realatively simple calculation though. For each year just multiply the pervious cell by 1.03 (for a 3% interest rate)

You may also want to addin calcs for income tax and/or corp tax on company profits.

[Martin at NixonWilliams]

What exactly does actively managing it mean? Does moving it into a savings accounts with higher interest and a notice period count as managing it? Or would you have to say shift it between multiple banks, buy bonds, shares etc.

This is not defined anywhere unfortunately. The safest approach would be to leave the money in your current account, though I imagine transfers to/from a savings account would be ok, for example those typically used to set aside taxes. Having said that, even with this you might want to consider the sums involved as there is only so much that needs to be set aside for tax.

Examples of activiely managing cash would be investing in things like shares, commodities, fixed term bonds etc. as it is clear that the cash is being managed in order to earn investment income.

[lukemg]

Got a few bob now in company account so share the concern. I am reacting by bouncing big chunks into my SIPP and having a vague plan to either carry on paying me from the company when I have jacked in work to deplete the reserves and still stay under top rate (wont take long without more going in I reckon)OR close down company, dont know the details but thought you can do this once without any trauma and keep most of the dosh ?
Lack of return on the cash sat there IS a big concern tho...
As far as blowing it as fast as it comes in, tried that first time round contracting and when the arse fell out of the market I was left budgeting and driving a golf diesel.
I agree you have to smell the roses and enjoy it as you go along but the best luxury for me now is to be immune to the market and able to only take work that suits cos I have the buffer to cover me, that feels good.

[Maslins]

Got a few bob now in company account so share the concern. I am reacting by bouncing big chunks into my SIPP and having a vague plan to either carry on paying me from the company when I have jacked in work to deplete the reserves and still stay under top rate (wont take long without more going in I reckon)OR close down company, dont know the details but thought you can do this once without any trauma and keep most of the dosh ?
Lack of return on the cash sat there IS a big concern tho...

I don't understand the fear about closing a company down. Sure, if you're setting up another company the next day to continue contracting you're being cheeky...but if you're giving up work anyway as this post sounds like, what's the issue?

More generally though, yeah, SIPPs tend to be a winner, and afraid most companies with cash have the same complaint about getting piddly % return on business savings. Investing it in stocks and shares/property through the company isn't ideal for a variety of reasons.

[Pegasus]

Can relate to OPs question to a large extent.

Only 6 years contracting and fair bit of cash already accumulated in the limited company (after taking out ~80K per year). I don't particularly like the Pensions option, so have ruled that out for the time being. What else can I do with the cash lying in the company account, without taking a direct tax hit by withdrawing it?

Is it ok to buy a buy-to-let property, and let it through the company? (Even after rental taxes etc, it would still be far better than saving rates I think)
Or does that make it risky from the viewpoint of being treated as an investment company?

Any other options/ideas most welcome.

Thanks.

[northernladuk]

Can relate to OPs question to a large extent.

Only 6 years contracting and fair bit of cash already accumulated in the limited company (after taking out ~80K per year). I don't particularly like the Pensions option, so have ruled that out for the time being. What else can I do with the cash lying in the company account, without taking a direct tax hit by withdrawing it?

Is it ok to buy a buy-to-let property, and let it through the company? (Even after rental taxes etc, it would still be far better than saving rates I think)
Or does that make it risky from the viewpoint of being treated as an investment company?

Any other options/ideas most welcome.

Thanks.

Buying property through a LTD isn't a good idea. You get taxed on the profit plus getting it out of the company so the general rule is not to bother.

We have had many threads like this over time and no one has come up with anything feasible as yet. Santander do a Business saver account paying a percent or two but that is about it. You really should look at the pension option if you have spare cash, it is one of the most efficient ways off getting your money out long term. If you have spare cash at least use some of it to secure your future. Pensions do get a bad rap but it is worth spreading your risk, particularly with the tax savings on it.

[Fred Bloggs]

And as a bonus, any money paid into a pension is also out of reach to Hector if he comes sniffing around with respect to IR35.

[Pegasus]

Thanks NorthernLadUK.

Yes, thats in-line with what I thought, and thats the reason why the cash has been accumulating in the limited company account (have few savings accounts paying 1-2%, but its all too low anyways).

Am in the early 30s so pension does not appeal much to me at this stage. But will try to look at it in the coming days.

Based on my current limited knowledge about pensions, I think you can't take out any money till around 55, and at that stage also, you can only take 25% as a lump sum, and rest will have to be an annuity?
In that case, won't we lose the bet big time if we die shortly after 55?

Another reason why I haven't looked at pensions is that I am not sure whether I will retire in UK or not, and don't know about the rules regarding international transfers of pension contributions. If I shift out of UK permanently when I am around 40-45, will I still be able to access my UK pension when I retire (given that I have British passport/citizenship)?

Many thanks.

[northernladuk]

Thanks NorthernLadUK.

Yes, thats in-line with what I thought, and thats the reason why the cash has been accumulating in the limited company account (have few savings accounts paying 1-2%, but its all too low anyways).

Am in the early 30s so pension does not appeal much to me at this stage. But will try to look at it in the coming days.

Based on my current limited knowledge about pensions, I think you can't take out any money till around 55, and at that stage also, you can only take 25% as a lump sum, and rest will have to be an annuity?
In that case, won't we lose the bet big time if we die shortly after 55?

Another reason why I haven't looked at pensions is that I am not sure whether I will retire in UK or not, and don't know about the rules regarding international transfers of pension contributions. If I shift out of UK permanently when I am around 40-45, will I still be able to access my UK pension when I retire (given that I have British passport/citizenship)?

Many thanks.

Time to look in to them in detail then so you can make an informed decision rather than one of the cuff. 30's is the perfect age to be looking at a pension, young enough, money coming out of your ears. Do you want to try saving 100's of K for one when you are 40-50, slowing down, family, wanting to retire early etc etc... that's the whole point of a pension. I think the 'I am 30 I don't need a pension' stance couldn't be more wrong.

Who knows where contracting will be in 10 years and if it is on it's arse where is your pension money going to come from? You think you will be able to save enough in less than 20 years to keep you in a comfortable life for potentially the next 50 after retirement?