Reply to: Using Dividends

[SandyDown]

You can withdraw extra money from the company's accounts and still make it as a loss and not as salary to yourself by:
1- giving gifts, you are allowed to give a 3K to each child
2- director's loan
3-Say you want to put a substantial amount into pension
4- If you have a car sell your car to your company
5- open a subsidiary company transfer funds into it, you can sell your house to that company and hence pay the mort age that way (legitimate company expenses) but be warned this way you have capital gains implications.


Oh don't worry about income shifting, its been rejected for this year, and don't believe it would come into force (even if it did, they wont back-date it)

[THEPUMA]

How come? If I was paying normal CGT it would be 18% so where does 25% come from?

The point is that if you close down and start back up again, then HMRC may argue that the proceeds cannot be treated as a capital gain at all. They have to be treated as dividends.

[hgllgh]

no they'll try and top it up to 25% on the lot as opposed to 10% on the balance after your exempt amount.

How come? If I was paying normal CGT it would be 18% so where does 25% come from?

[THEPUMA]

I am intrigued as to how this could work without flagging up as fraud??

You have to have a very good accountant or, failing that, us!

[THEPUMA]

ok, well that sounds good... and I might be gone longer than several months so it sounds fair enough. I am just thinking (with my devils advocate cap on) that hmrc will ignore any good intentions and come after me anyway! But, I suppose even if they do I would pay another 8% on top of the 10% already paid... not ideal but better than paying higher rate div/income tax right?

no they'll try and top it up to 25% on the lot as opposed to 10% on the balance after your exempt amount.

[hgllgh]

You will be fine, Im sure. If you are out of the country for several months after the shutdown, you can just tell the tax man you had a change of heart whilst sat on the beach, and that the contractors life IS for you afterall. I have done exactly this before, and I know several contractors who have done the same.

ok, well that sounds good... and I might be gone longer than several months so it sounds fair enough. I am just thinking (with my devils advocate cap on) that hmrc will ignore any good intentions and come after me anyway! But, I suppose even if they do I would pay another 8% on top of the 10% already paid... not ideal but better than paying higher rate div/income tax right?

[spoons]

You were correct. The mechanism for having the proceeds treated as capital is applying using the concession, ESC C16. This concession is only available on the cessation of trade and HMRC have just added an additional statement when you apply for the concession, which from memory is confirmation to this effect.

A potential solution is the old use your company money to offset your personal mortgage trick. This is not for the faint-hearted. I've seen a technical opinion that it works (without generating a BIK or additional corporation tax charge) but luckily never had it challenged as it is a grey area. You have to make sure the paperwork is spot on though.

I am intrigued as to how this could work without flagging up as fraud??

[Chugnut]

A potential solution is the old use your company money to offset your personal mortgage trick. This is not for the faint-hearted. I've seen a technical opinion that it works (without generating a BIK or additional corporation tax charge) but luckily never had it challenged as it is a grey area. You have to make sure the paperwork is spot on though.

In today's tax climate I can't see any attempt at elaborate tax planning being acceptable in HMRC's eyes.

It's only fair.

[THEPUMA]

Looks like I've got it wrong, sorry, I was sure I'd read that closing down a company and starting another effectively doing the same thing would invalidate the relief, but I've reread the guidance notes and can't find it.

You were correct. The mechanism for having the proceeds treated as capital is applying using the concession, ESC C16. This concession is only available on the cessation of trade and HMRC have just added an additional statement when you apply for the concession, which from memory is confirmation to this effect.

A potential solution is the old use your company money to offset your personal mortgage trick. This is not for the faint-hearted. I've seen a technical opinion that it works (without generating a BIK or additional corporation tax charge) but luckily never had it challenged as it is a grey area. You have to make sure the paperwork is spot on though.

[Archangel]

Evidence?

Looks like I've got it wrong, sorry, I was sure I'd read that closing down a company and starting another effectively doing the same thing would invalidate the relief, but I've reread the guidance notes and can't find it.

[Pickle2]

I can't find any info on the rules regarding shutting down a company, paying the 10% tax and then starting up again. Even the HMRC website does not give any guidance on this. I am considering doing this as I am planning on travelling for a few months after closing down, but when I get back I will probably start up again, so I have no idea if HMRC will come after me or not?

You will be fine, Im sure. If you are out of the country for several months after the shutdown, you can just tell the tax man you had a change of heart whilst sat on the beach, and that the contractors life IS for you afterall. I have done exactly this before, and I know several contractors who have done the same.

[hgllgh]

What about shutting down the company and applying for Entrepreneur's relief? You would only pay 10% tax then (Assuming you have less than £1M in the company)

I can't find any info on the rules regarding shutting down a company, paying the 10% tax and then starting up again. Even the HMRC website does not give any guidance on this. I am considering doing this as I am planning on travelling for a few months after closing down, but when I get back I will probably start up again, so I have no idea if HMRC will come after me or not?

[Platypus]

but if you start another then HMRC will take a dim view.

Evidence?

[Archangel]

I have managed to save a decent sum of money which I left in my company's bank account. Now I'd like to use the money to pay off my mortgage. However, a colleague told me to be careful with that as I will end up paying a much higher tax ( taken into account the monthly amounts I am taking out to live on which will also be partly salary but not through PAYE/partly dividends)

What is the safest way to withdraw all the money without having to pay the higher taxes? do I add a shareholder (one of the kids) to the company and divide dividends between us? Someone also suggested if I open another company I am able to transfer money from one to another r without incurring any extra tax penalties.

Adding one of the kids etc is tax evasion, you can get jail time for that.
You could add your wife as a shareholder and pay her say £35,000 taxed at basic rate, and yourself the same. (until this method is probably removed next budget (see "income shifting", or "the family business tax"))
If you open another company and transfer money to that one how would you then withdraw that money?
The safest way is to draw approx £38,000 pa until the money runs out.
Shutting down the company is an option, but if you start another then HMRC will take a dim view.

[MrRobin]

Income shifting (distributing profits to family members) is a dodgy area and I wouldn't touch with a barge pole, others on here might say it was perfectly fine to do tho...

What about shutting down the company and applying for Entrepreneur's relief? You would only pay 10% tax then (Assuming you have less than £1M in the company)