where to kepp surplus money

[eek]

hope it makes sense

I think you are simply making this too complex for yourself.

The rainy day fund does not exist. All profits not taken out of the company, either as wages or expenses are taxed.

In theory you might be able to get a corporation tax credit that takes the taxed £158 back to £200 but that is a very awkward way of doing things and I really wouldn't go there.

[Pondlife]

hope it makes sense

Not really.

You have to pay corporation tax on the £200 regardless of whether it is paid out as a dividend. It is profit and therefore taxable.

Other than putting it in a pension, spending it as part of running costs, or paying it as salary, there are very few things that could be classified as a 'business expense' that would reduce the corp tax. Keeping it for a rainy day is not a business expense.

As the others have mostly said... your choices are paying it to yourself as a div and putting it where you think it will earn value OR Keep it within the business somewhere it will earn value (see greg's post).

Talk to your accountant and get them to explain the fundamentals to you. You seem a bit clouded on this whole topic to be honest.



Edit: the very short answer is that there is very little chance you can keep the £200 as available to you within the business and also classify it as an expense for Corp Tax. HTH

[contractor55]

Hi

I`m aware of how much to pay myself and I have an accountant , before I speak to him I`m just trying to get some background info- what do others do . As you mentioned I`m trying to keep under the tax threshold. I`m also aware that Div comes out of profits

Question say I need £1000 to live but max-ing out my div`s / wages I have £1200 per month after Corp tax so I have £200 for rainy day . Any surplus I have in the company which could take me over the high rate Tax rate goes into a pension. The extra £200 came to me as part of the div`s. What I`m saying is, is it better to keep the £200 in the company or keep the div`s as they are with the spare £200 coming to me - held in a savings account, ISA etc bear in mind corp tax has already been applied or retain it in the company If I retain it where go I "retain it"- as part of Div`s but held back as expense.

If it is part of the calculated DIV`s then Corp tax has been applied if it is expense`s then no Corp tax.

Income +VAT £1200

Pay VAT 14%

Money left £1032

Expenes £10

Left for Div/ Corp Tax £1022

Corp tax @ 14% =£214.62

Available as Div`s £807.38


Income +VAT £1200

Pay VAT 14%

Money left £1032

Expenes £10
rainy day £200

Left for Div/ Corp Tax £822

Corp tax @ 14% =£172.62

Available as Div`s £649.38


So I get £158 less as div`s / wages but I got £ 200 for a rainiy day which I could use as a wage without tax etc ?- Is that retained earning?????

hope it makes sense

[northernladuk]

(3) Buy some Gold;
(4) Buy stocks or shares;

And before we bolt off and start discussing the in's and out's this is discussed on here regularly and so far there hasn't been an argument given that this would work. You pay tax on profits, you can lose your investment yadda yadda.

But keeping money in company and assuming you're ok cos you've already paid 20% CT relies on the tax laws not changing in the interim period....

You have to apply some common sense here. The law's are not going to change that much and they are not going to change quickly and without warning. Flippant comments don't really help.

[MrRobin]

You will still pay corp tax on the 'rainy day' portion of your example as this is retained profit. If the money is consequently used as a valid business expense in a future, then you will get credit for the tax you paid at that point.

[psychocandy]

But keeping money in company and assuming you're ok cos you've already paid 20% CT relies on the tax laws not changing in the interim period....

[Greg@CapitalCity]

A few options

(1) Keep it in your business bank account;
(2) Set up a business savings account (or term deposit);
(3) Buy some Gold;
(4) Buy stocks or shares;

There are lots of places you can keep your money - just trying to keep the value of the warchest up with the rate of inflation might be tricky unless you decide to invest some of it (and then it could go either way...)

[eek]

My first bit of advice is find an accountant as these are straightforward questions and if you don't know the answer you really do need one.

Corporation tax is not based on the money in the companies account but on the companies profit once expenses and wages are paid out.

The real question you need to be asking is how do you go about minimising the amount of tax you personally pay when you transfer the money from the business into your personal accounts. Here there are three areas:-

1) Minimising the amount of tax your company pays by paying some wage.
2) Minimising the amount of tax you pay when transferring the rest of your companies profits.
3) Pension contributions directly from the company.

The advice some accountants give is to pay £7200 in wages as this allows £7200 to be paid from the company without incurring corporation tax.

You then pay dividends to take you to the upper tax limit (I think its £31000 or so that you can take out based on the 10% tax credit you also need to cover).

And of course any pension contributions are tax deductible from corporation tax.

Personally I wouldn't concern yourself about where money is kept but focus on how it ends up in your hands at a minimal lose to you.

[contractor55]

Hi
I posted a previously thread regarding Warchests which I got some replies on , However the real question was how you "keep" the money in the company. I`ve built up a warchest by max-ing my pay and Div`s being split between myself and partner so reduced tax . The real question I had was that any Div`s are paid out after paying Corp Tax as we know however if you have surplus money in the company and have the happy option of either going above the higher tax threshold or keeping money in the company- where do you keep this money


1. Pay Corp Tax but hold back on paying the full Div`s until you need it -Corp Tax already paid

2. Keep the same amount back in the company as retained money i.e not liable to Corp Tax

option 2

Income £1000

Expenses

Wages £200
Mobile£50
Account £100

Total £350

Remaining £650

Corp tax £650 * 20%

£130 to HRMC

Divs split 650-£130

£ 520

Now rather then keep say 10% of the divs in the company to which you have already aid tax on , can you keep it as "Expense"


Income £1000

Expenses

Wages £200
Mobile£50
Account £100
Rainy day £200

Total £550

Remaining £450

Corp tax £450 * 20%

£90 to HRMC

Divs split £450-£90

£ 360


The idea being that the rainy day amount will be used to pay your "wages". Say you need to have £1000 per month to live and currently your wages - minium and DIVS covers this , but when you are out of work you increase your wage to £1000 amount which is taken from your rainy day- not with standing any incase NI contributions etc. When I'm back in work reduce the wage back to the minium again?