Keeping money in your company, or withdrawing it

[SBK1972]

Hi all,

Many thanks for replying. Yes, I have been contracting a long time (24ys). The trouble is that when I first started I looked up the nuts and bolts of these subjects, then over the 10 years working, forgot why, how, CT, etc etc. I suddenly thought why am I doing this again and whether at my age / new laws / changes in CT and what you can / cant do now that I might need to change my usual ways of working.

My company wat chest is good, always is as 24 years of contracting has taught me that 24hrs is a long time / life changing and tomorrow could be a rainy day :-)

Actually, thinking about it, I went down the road of capital distribution about 17 years ago, i.e. loaded up my company then closed it down paying CG on the amount. Is this still about ? I remember the rules were going to change in 2007/8 ?

I should of known / remembered that CT were included in CT. Apologies for this.

Time to go see a tax advisor and get my long term strategy dusted off / reviewed.

Excellent as ever though, well done all.

SBK

[psychocandy]

Take it all out in Dividends and spend it.....

Otherwise, when you've not got a gig you can't claim JSA... #justsaying

[ChurchillKnight]

As everyone has said previously, once you’ve paid CT on your company profits you may consider a combination of salary, dividends, pension and claiming applicable expenses to reduce your tax liability. However the best tax planning option for you depends on your personal circumstances, which you (and your accountant) should know best.

Regarding leaving money in the company, it is smart to leave at least some in the company for future planning, and depending on how long you are going to use the company you could consider Members Voluntary Liquidation (MVL) or capital distribution as additional tax saving options when you wind up the company one day. But again these aren’t right for everyone and your accountant should advise.

[northernladuk]

I'm rather stunned to read this question and then find you've been contracting 24 years!!

https://www.contractoruk.com/forums/...ml#post1010895

You are in your late 40's but have only been putting 300 quid in to a pension for three years?
https://www.contractoruk.com/forums/...ml#post2336789

Might be worth re-visiting that if you think you are cash heavy.

Did you not learn the basics of CT from this question a few years ago?
https://www.contractoruk.com/forums/...ml#post2336654

You said your accountant was useful in 2016. Why have you not changed them yet?
https://www.contractoruk.com/forums/...ml#post2336736

[BlasterBates]

Leaving cash in the company is a good idea as you can pay dividends when you're not working and probably reduce the amount of tax you pay. You may want to invest it though.

[Jess inniAccounts]

Hi all,

Embrasing question this but I need wisdom.

For years now I tried to build up a certain amount of cash in my company, a buffer so to speak. However Im starting to feel this may be the wrong strategy as this is then seen as profit and I pay a ton of corp tax.

Therefore is the wiser move to literally take the money out as divys ? Get with the tax, rather that be hit with corp tax, and then personal tax when I eventually withdraw it later ?

E.G. Let's say 100K a year, expenses + sal + adhoc paid, I have 25K in the company. I then pay corp tax on this. Should I then take a 25K divy leaving nothing ?

I tend to let me account do all the tax calculation. I asked him the above and he hasnt answers, so thought I might ask you guys.

What do you guys do ?

SBK

Leaving money in your company will not attract Corp Tax, this is already payable on your profits. Most contractors take a low salary, say up to the NI threshold, then dividends to withdraw the rest of the money they need to live (as dividends are taxed less than salary).

This is basic stuff for your accountant and, as these guys have said, if they aren't giving you this advice, they're not right for you!

You can reduce your Corp Tax liability with expenses, pension is a big one. Have a look here for a list of allowable expenses or a quick Google should help.

[northernladuk]

I tend to let me account do all the tax calculation. I asked him the above and he hasnt answers, so thought I might ask you guys.

If your accountant is not helping you with the absolute fundamentals of your finance and leaving you in this state you seriously need to get a new one. Its absolutely ridiculous they aren't putting you right here.

That said CT is probably covered on page one of business tax for dummies so you should do a bit of reading yourself in the meantime.

For years now I tried to build up a certain amount of cash in my company, a buffer so to speak. However Im starting to feel this may be the wrong strategy as this is then seen as profit and I pay a ton of corp tax.

So this is not the wrong strategy. You need 6 months + of money at full rate to be really comfortable. The more the better.

[Maslins]

However Im starting to feel this may be the wrong strategy as this is then seen as profit and I pay a ton of corp tax.

Therefore is the wiser move to literally take the money out as divys ? Get with the tax, rather that be hit with corp tax, and then personal tax when I eventually withdraw it later ?

Dividends have zero impact on the company's taxable profit, so afraid you're misguided here.

If you want to reduce corporation tax and don't need all the money from the company, pension contributions may be a good option for you.

Alternatively your options are:
- take it all out as dividends and suffer fairly high corporation tax and personal tax.
- take only modest dividends leaving a growing cash pot in the company. Still suffer fairly high corporation tax, but lower personal tax.

[WordIsBond]

You can't reduce Corp Tax by taking dividends.

You can reduce it by paying yourself a larger salary but that would be poor tax planning.

You can also reduce it by making large pension contributions from your company into your own pension. That might be very good tax planning if you are happy to lock the funds away until retirement.

Edit: you probably need to do a lot more reading in the guides on the right side bar and then talk to your accountant about tax efficiency.

[TheCyclingProgrammer]

Where does corporation tax come into the equation? You pay CT on your company profits regardless of what you then do with the profits you have left. You take dividends from post tax profits.

It’s always wise to leave a buffer or warchest on YourCo. Fully utilise your basic rate band and leave the rest for a rainy day.

[SBK1972]

Hi all,

Embrasing question this but I need wisdom.

For years now I tried to build up a certain amount of cash in my company, a buffer so to speak. However Im starting to feel this may be the wrong strategy as this is then seen as profit and I pay a ton of corp tax.

Therefore is the wiser move to literally take the money out as divys ? Get with the tax, rather that be hit with corp tax, and then personal tax when I eventually withdraw it later ?

E.G. Let's say 100K a year, expenses + sal + adhoc paid, I have 25K in the company. I then pay corp tax on this. Should I then take a 25K divy leaving nothing ?

I tend to let me account do all the tax calculation. I asked him the above and he hasnt answers, so thought I might ask you guys.

What do you guys do ?

SBK