What after 40K limit?

They need to see your contract.
Most high street lender normally look at 3 months payslips and bank statements. It is the clue what some accountants help people to get a mortgage especially with the RIGHT contacts

Why not try Contractor Mortgages made Easy, they can lend on your day rate. PM me and I'll give you their details!!

[Taxless]

Don't you also have to pay the same again towards next years personal tax?
I.e. The above example would result in a £12.5k tax bill due 31st Jan after the tax year PLUS £6.25k on 31st Jan and £6.25k on 31st July towards next years tax bill.

That is where I got caught out a couple of years ago.

In your example, yes you would, unless in the second year you were not going to take (higher rate) dividends, where you could apply to reduce the interim payments all the way down to Nil.

[Gaz_M]

Without getting into exact figuires on bandings, personal tax on dividends that fall into the higher rate tax bracket are taxed at 25%. You need to ensure that your total income for the tax year doesnt exceed £100k as you will start to lose your personal allowance, so your salary and part of the dividends will fall into the higher rate tax bracket.

So if we use the example of extracting the £50k surplus, this would cost £12,500 in personal tax, due 31st January after the tax year in which the dividends fall into.

I hope this helps.

Thanks
Neil

Don't you also have to pay the same again towards next years personal tax?
I.e. The above example would result in a £12.5k tax bill due 31st Jan after the tax year PLUS £6.25k on 31st Jan and £6.25k on 31st July towards next years tax bill.

That is where I got caught out a couple of years ago.

[prozak]

Taxless,

Yep. Hence her low share percentage. Obviously if we ever decided to take out more then i'd be hit by the higher tax and we would also be hit by student loan charges.

&

The contingency is non-contract periods. I'm not planning on ever taking a lump sum of contingency or retirment funds out of the company if I have to pay additional tax.

[Taxless]

"I currently have myself and the wife employed and a 80/20 split for shares (due to her student loan that i refuse to pay!). We take the maximum we can without paying tax or her student loan back...."
So you are managing to keep her total income (Salary + Dividends + 10% Tax Credit + any other income she may have) below £15k?

"..........if the contingency is never needed then it is early retirement seed money."
Depending on the sum involved, you should watch if the proposed changes to the legislation for a simple company wind up go through, as the cost of accessing significant sums tied up in close companies is likely to a lot more expensive if you have to access it all quickly.

[prozak]

It has been said already.

But I'll add my 2p.

There are two lines of thought.

1. Take all the money you can and pay the tax.
2. Take only to the limit so you have no personal tax to pay when you do your SA each year.

I am in the option 2 camp. I hate paying anymore tax than is absolutely necessary.

I currently have myself and the wife employed and a 80/20 split for shares (due to her student loan that i refuse to pay!). We take the maximum we can without paying tax or her student loan back....

The amount we take is equivalent to a permie salary of 85k or something..... which is not too shabby.

We are not greedy.

The rest (>50% of profit) is held in the company as retained earnings.

As northernlad suggests. This is contingency money and if the contingency is never needed then it is early retirement seed money.

I can sort of understand your desire to maximise cash - we only have 15k left on mortgage - but if it was 300k i might be taking a different approach.

[Bradley]

Why would you pay a commercial rate of interest?

Why not try Contractor Mortgages made Easy, they can lend on your day rate. PM me and I'll give you their details!!

Surely you would just max out your basic rate band and then take the rest as an interest free loan from your company making sure to clear the balance before the 9 months plus one day time limit?

For the record, can you confirm that you're not on commission from "Contractor Mortgages"?

[Danielsjdaccountancy]

Hi all,
I am completely confused now. I am about 6m into contracting so pls forgive my ignorance.

The point is, my accountant suggested I take about 5k as salary and some dividend but make sure it doesnt exceed 40k together (most tax efficient way of getting money out of the company). we plan to buy a home next year and I am wondering how to take out more money from the company then.

Assuming I paid myself a sal+div of 40k until December and about 50k remains in the Business account as profit (post CT)... if I wasnt to get that 50k out (in December)into my personal account, how much does that exactly translate to? I mean, how much will that become (post all taxes etc) when it lands into my personal current account?

please share your inputs...
Thx!

Why not try Contractor Mortgages made Easy, they can lend on your day rate. PM me and I'll give you their details!!

[rd409]

Look at offset mortgages. Your ltd can invest money into a saving account, and you wont have to pay too much tax as well. Ask your accountant first to make sure if it is allowed though. I am not sure, as there is a mixed opinion everytime offset mortgages have been discussed here.

[Taxless]

The limits for the year to 5 April 2012 are : Personal Tax allowance £7,475 and basic rate band £35,500, so if your income exceeds £42,475 the excess dividends are taxed at effective 25% rate, unless you go way over this limit.

For these purposes, you should remember that income means personal income from all sources, (gross) interest credited to personal bank/building society accounts, (gross) dividends from plc shareholdings etc. In particular remember that for the limit, any dividends you draw have to be grossed up by the “notional” 10% tax credit to see if you have exceeded the limit.

For example, if you were drawing dividends of £35,000, the gross amount to establish whether you were into higher rates would be £38,889 (less 10% = £35,000). The effective 25% tax rate applies to the £35,000 net dividend.

You could push the salary up to £7,072 without any tax or NIC becoming payable.

[northernladuk]

Just a word of warning. If you plan on emptying your account I would guess you are pushing from a pretty big mortgage here.

By emptying it you will have no Warchest for rainy days (months). Maxing out the mortgage with absoultely nothing behind you to back up the times you are out of contract is an extremely risk plan. There are more than enough people here have eaten thruogh 6 month+ warchests and a couple of people who have lost the car and house etc...

[Danbro]

Higher Rate Tax On Dividends

Hi all,
I am completely confused now. I am about 6m into contracting so pls forgive my ignorance.

The point is, my accountant suggested I take about 5k as salary and some dividend but make sure it doesnt exceed 40k together (most tax efficient way of getting money out of the company). we plan to buy a home next year and I am wondering how to take out more money from the company then.

Assuming I paid myself a sal+div of 40k until December and about 50k remains in the Business account as profit (post CT)... if I wasnt to get that 50k out (in December)into my personal account, how much does that exactly translate to? I mean, how much will that become (post all taxes etc) when it lands into my personal current account?

please share your inputs...
Thx!

Without getting into exact figuires on bandings, personal tax on dividends that fall into the higher rate tax bracket are taxed at 25%. You need to ensure that your total income for the tax year doesnt exceed £100k as you will start to lose your personal allowance, so your salary and part of the dividends will fall into the higher rate tax bracket.

So if we use the example of extracting the £50k surplus, this would cost £12,500 in personal tax, due 31st January after the tax year in which the dividends fall into.

I hope this helps.

Thanks
Neil

[northernladuk]

You just draw it out and pay tax on it. It's that simple.
The 40k is teh most tax efficient thats all. It's not a limit.

People come up with some pretty exotic ways of getting out in more tax efficient ways but if you want it in your pocket divi it out seems the best.

You could look in to a loan, you can withdraw 5K as a directors loan but it has to be repaid at a set time and you cannot just repay and withdraw it again (bed and breakfast loan) and there is some way of loaning a larger amount but paying BIK or something. Never seemed worth it so didn't take much notice. Do a search for the word 'loan' in the accounting section.

[bluedrop]

Hi all,
I am completely confused now. I am about 6m into contracting so pls forgive my ignorance.

The point is, my accountant suggested I take about 5k as salary and some dividend but make sure it doesnt exceed 40k together (most tax efficient way of getting money out of the company). we plan to buy a home next year and I am wondering how to take out more money from the company then.

Assuming I paid myself a sal+div of 40k until December and about 50k remains in the Business account as profit (post CT)... if I wasnt to get that 50k out (in December)into my personal account, how much does that exactly translate to? I mean, how much will that become (post all taxes etc) when it lands into my personal current account?

please share your inputs...
Thx!