Leaving warchest in company

[kevpuk]

Draw it all as Directors Loan, pay back at 4% interest and go wild with BIK?
Isn't that what we all do?

[psychocandy]

Understatement of the year that is.

This isn't a serious question is it? You can't see the advantage of keeping money that you don't need just yet in the company? Meaning everything you divi out you can spend. As opposed to divi'ng everything out, paying tax on it in the next tax band and then putting it in a personal warchest?

Not everyone agrees about keeping it in the company but it's my favoured method.

We have also done where you would keep warchest as well so a search might give you an idea of peoples differing opinion.

To clarify, yes its obvious that going into the next tax bracket is not a good idea. I just cant see any advantage in leaving it in there if you're not going to go into the 40% bracket.

[psychocandy]

Thanks all. As I thought there is no advantage unless we're talking about the 40% personal bracket here. CT is paid on a years profit regardless of future years usage of that money.

[kal]

your not saving on corporate tax, that cant be avoided. what you are saving on is the extra tax paid when you breach the higher tax rate bracket for taking over 40k out in a year.

If you dont need the money then why pay the extra tax on it for breaching the higher rate limit when you can use the money later and save that extra tax.

Exactly, that's what I am doing currently, draw up to 40% and keep the rest there, from next year I want to be offsetting my mortgage as much as possible so a directors loan may be an option I guess?

Anyone see any problems with taking a 10k directors loan and using it to offset the mortgage for 9 months and then paying it back?

[d000hg]

Never done this. I always take dividends out (up to 40% bracket). However, I can see some advantage of leaving there.

But, at the risk of missing the obvious, how does this work?

OK, Year 1 I decide to leave £100K in the company.

You're contradicting yourself. If you only take dividends up to the upper tax threshold limit and you have £100k, you HAVE to leave the bulk of it in the company.

[d000hg]

I take everything I can out of my profits up to 40% limit, based on salary to me and divis to my wife and I.
I've been squirreling as much as I can away from this in liquid places like a Santander 123 account for the interest and then ISAs.
Initially, this was my warchest.

If you are on a decent rate, taking money out to the 40% limit leaves a lot left over.

Conversely if you are the sole earner in your household, "only" taking personal income up to that threshold isn't going to leave much to max out ISAs, savings, etc... so if you are on £500/day you can struggle with being rich and poor at the same time, as it were!

[Pondlife]

Anyone see any problems with taking a 10k directors loan and using it to offset the mortgage for 9 months and then paying it back?

Yup, taking out the loan, repaying to avoid the 25% tax and then re-issuing is termed "bed and breakfasting" and isn't allowed.

See here

http://www.hmrc.gov.uk/budget2013/cl...s-loophole.pdf

[Maslins]

...so you're planning on earning nothing for 9 years after a year's work to avoid tax?

Why not save a further £20k in CT in year 1 by not working that year either?

Bit confused...deliberately not earning may mean you pay less tax, but tax is only every a % of what you earn, so your plan sounds very much like cutting off your nose to spite your face.

Normally (very witty) accountants reply with "why don't you pay us twice as much to do our work, then you'll save even more tax".

[kal]

Yup, taking out the loan, repaying to avoid the 25% tax and then re-issuing is termed "bed and breakfasting" and isn't allowed.

See here

http://www.hmrc.gov.uk/budget2013/cl...s-loophole.pdf

I wasn't planning on re-issuing it, just using it to give me a one off 9 months worth of 10k off my mortgage, agree that 'bed and breakfasting' would be a no-no!

[TheFaQQer]

Exactly, that's what I am doing currently, draw up to 40% and keep the rest there, from next year I want to be offsetting my mortgage as much as possible so a directors loan may be an option I guess?

Anyone see any problems with taking a 10k directors loan and using it to offset the mortgage for 9 months and then paying it back?

Make sure the loan doesn't exceed the HMRC limit on when to pay interest or not. Make sure you don't fall foul of the bed and breakfasting rules.