Large sums of money - investment advice

[waccoe]

Hi all,
I've been contracting a long time, over 17 years. I've built up a fairly large sum of money which tends to stay in the business account doing very little. The shares are split 50/50 with my missus, who also uses the company to contract, through her own part-time sales business. Now, we both take a small salary and the rest in dividends, but I take care to not go over the 40% tax bracket for both of us.

My question is, how can I make best use of the money that stays in the company account? It just seems wasted sitting there. Is it worth paying myself more in dividends, and taking the hit with the extra tax? How does everyone else manage their finances? As a hypothetical example, (these aren't my figures btw).

If I have 50K sitting in the company account. I earn say £500pd, and work 48 weeks a year, giving a turnover of 120K. I take 2x10K a year in salary, giving 100K remaining, ignoring the expenses, and assuming the 40% threshold is 40K, I then pay 2x30K dividends, leaving 40K for corp-tax etc, but also still leaving the 50K in the company account that I haven't managed to get my hands on.

Is an old-timer like me missing a trick here?

[MrRobin]

You're not missing anything. You can invest within your company but you obviously pay corporation tax on profits and there are complications if you end up in a state where a significant amount of your Ltd income is being made from investments. The best option is to get your own mitts on the cash (i.e. you as an individual, not you as a Ltd). This has been discussed quite a few times -- do some searches for some more in depth answers but there are generally 3 trains of thoughts:

1) Pay larger dividends, take the hit on tax (25% on net divi, up to a gross personal income of £100k).
Advantages - The tax is out of the way and you are now free to invest in what ever you like without having to worry about corp tax or any of the complications. Tax free investment options like ISAs are available to you as an individual
Disadvantages - Obviously the 25%. It's not the most tax efficient way of extracting money from your ltd

2) Close down the company and apply for entrepreneurs relief on the capital gains
Advantages - Only 10% tax to pay on the distribution of capital
Disadvantages - Time may be running out on this (HMRC are moving the goal posts) and starting another "Phoenix" company to carry on contracting is frowned upon by HMRC

3) Keep the money for a rainy day / early retirement
Advantages - If you get an extended period with no work, you can carry on paying yourself up to the 40% threshold every year with zero extra tax to pay. You can even time it so that you build up enough to stop altogether and it tides you over before any pension kicks in
Disadvantages - Tax rules change and long term 'planning' is far from guaranteed

IANAA, do your own research etc etc.

[northernladuk]

In general I would say probably not. I presume you are putting a healthy amount away in to a pension to make use of the tax breaks? Possibly used the 5k directors loan every so often to ofset the mortgage for a short time every so often?

How about lend it at HMRC interest rates to someone? There is a link about the rules of this on a thread today as it happens?

Bought Mrs Waccoe a company car (under 110g Co2)?

Got a solicitor to sign it over to someone as a trust and re-invest it. Very questionable. THE PUMA wrote about this but not aware of anyone that has done it yet. Unproven risk.

Shut the company down and claim it back as Entrepeneurs relief (ESC 16)before the system is canned?

Apart from that I am stumped.

[waccoe]

Thanks for the replies.... I just hadn't thought about this for such a long time, I've always just done the same over the years, so wanted to make sure there wasn't some new fangled scheme for siphoning off money. Not sure I can be bothered with all the messing around, so think I'll just go with MrRobbins option 3, and drip feed it out over the years. I'm sure it will come in useful if I'm ever on the bench.

[Sockpuppet]

Bought Mrs Waccoe a company car (under 110g Co2)?

Or a van. Look at cars that can be classed as vans. L200, Hilux, Defender, Navara etc.

It's a good way to get money out of the company. If you're non flat rate you can reclaim VAT on fuel etc.

[northernladuk]

Don't let avoiding paying extra tax ruin your life IMO. We pay a hell of a lot less tax than permies so to pay 25% on a couple of 10's of grand might hurt like hell but it is still a lot less than permies.

Quality of life is much more important that saving a little bit of tax IMO

[JamJarST]

Don't let avoiding paying extra tax ruin your life IMO. We pay a hell of a lot less tax than permies so to pay 25% on a couple of 10's of grand might hurt like hell but it is still a lot less than permies.

Quality of life is much more important that saving a little bit of tax IMO

That is the best advice, why earn so much money and then not use some of it?

[Scrag Meister]

Don't let avoiding paying extra tax ruin your life IMO. We pay a hell of a lot less tax than permies so to pay 25% on a couple of 10's of grand might hurt like hell but it is still a lot less than permies.

Quality of life is much more important that saving a little bit of tax IMO

WNLUKS

[anothercodemonkey]

Your company can buy shares in listed companies and your company doesn't pay corp tax on the dividends. It does pay tax on any capital gains though but at the moment there are tons of companies on decent yields. e.g. Vodafone is on a yield of 5% and that has grown by an average of 5.5% compound over the last five years.

[ASB]

Your company can buy shares in listed companies and your company doesn't pay corp tax on the dividends.

That would be the usual outcome, but:-

- The company doesn't have to be listed.
- If the company is listed overseas and there is not an appropriate DTA with the country concerned then it is still taxable (in effect if the company is registered in a tax haven then the dividends will still be taxable).