Leaving tax money in your company account...

[SallyAnne]

SA - you earn a lot from what you have stated in other threads. Why on earth are you extracting all the available cash and paying the 40% tax on earnings above the threshold which you must be hitting? Surely best to just take up to the £37k and leave the surplus in the company until you really need it? Then you can decide whether paying the 40% is really worth it at that time!

Are you looking for a more constructive answer than "cause I'm a lass and can't stop spending"?

[ratewhore]

Why on earth are you extracting all the available cash and paying the 40% tax on earnings above the threshold which you must be hitting? Surely best to just take up to the £37k and leave the surplus in the company until you really need it? Then you can decide whether paying the 40% is really worth it at that time!

Dunno where you live Ferret but 37K isn't enough for a family to live on in the South East...

[Xenophon]

Dunno where you live Ferret but 37K isn't enough for a family to live on in the South East...

This is true (Xenophon Towers is in Kent). Whilst I have no family of my own, I can burn £37k pretty darn fast...

[Ardesco]

Up until recently, I've been doing exactly the same, but it's been pointed out to me that I could just leave all the money in the company account and link it to an offset mortgage - so I'll probably do that.

Nice idea, but not practical in the real world unless it is for a property that your company owns. If it is a property that you own you will be in effect loaning yourself the money which brings around a whole load of other crap (interest you have to pay your company, BIK because your company is not profiting from the money but you are, etc)

I've heard people try to justify it before but it's not worth it. Just divvy out the money and put it in a savings account linked to your mortgage.

[dude69]

Now that I know this, I am frustrated that my accountant doesn't provide this info for me as a matter of routine. I.e.

CT this month - £1500
Cummulative CT due on 31/01 - £7500

PAYE/NI this month - £100
Cummulative PAYE/NI due on 31/10 - £200

VAT this month - £1700
Cummulative VAT due on 31/10 - £4000

Company Balance - £25000
Available funds after all tax payments - £13300

If you allocate 31.9% of total invoicing for tax (VAT and CT - i.e. of £117.50 gross, £17.50 is payable as VAT, and £20 (20% for CT) = 37.5/117.5), and take that away from the amount in your bank account, the rest will definitely be payable as a dividend.

In other words, if you have billed £10k inc. vat for April,May,June,July,August, September, October, November, December, then that is £90k of which no more than 31.9%, i.e. £28,723 MAXIMUM will be payable as tax. You can therefore definitely pay any balance above £28,723 in your account as a dividend (some of which may be the previous year's retained earnings (on which tax has already been paid)). You can calculate it more accurately by looking at expenses and work in progress to work out the actual profit, but it's usually not necessary.

BTW, it's not really a good idea to pay out dividends too frequently. One you should not miss is an annual dividend on April 6th, the start of the new tax year. Pay out enough (assuming you have the retained earnings, and frankly if you don't, your rate is not high enough, or you are wasting too much money!) to take you up to the top of basic rate band (taking into account your salary for the year, and other income). The money is then in your account at the earliest possible date. Any further dividends can be paid when you need, but preferably only two or three times a year, and bearing in mind that all subsequent dividends will have 25% lopped off for the higher rate tax. The 25% deduction is quite a motivating factor not to take further dividends.

[gingerjedi]

BTW, it's not really a good idea to pay out dividends too frequently.

Is this a myth? All the accountants I've spoken to tell me you can take divs whenever you like and there is no legal reason not to.

Saying that I’m a complete noob when it comes to all this as I’ve only had my Ltd since April 07’, I have no idea what to expect from my accountant or what’s expected from me, am I in for some serious head scratching soon??

[SallyAnne]

SJD dont seem to mind how often you take divvies.

I've always taken mine every month (for 4 or 5 years now). I've also never filled out any kind of dividend document - and I've been investigated twice and noone's ever mentioned it.

Common sense has to prevail somewhere surely? As long as everything balances, you pay the tax you owe, you keep your receipts...nothing else matters surely?

[tay]

I've also never filled out any kind of dividend document - and I've been investigated twice.

Maybe these 2 facts are related?

[Jog On]

I'm a seat of the pants person as well

In take divis out as and when and very frequently, I know I'll be scrabbling around toward the end of the year to get my corp tax together but a lot of business owners I know do that - I don't see any reason why having a contracting Ltd should be any different. My mum's been doing it for the last 15 years and as long as the right sums are paid at the right times she never hears a peep.

I've heard mixed opinions about frequencies of divi payments so I tend to listen to the people who tell me it's OK to do what I do and ignore the rest

[SallyAnne]

Maybe these 2 facts are related?

Why would they be?