Reply to: What to do with the left over limited company income

[Olly]

And they were about the only posts that actually talked about the business end although it was a good discussion about old bikes. You made a profit well done, why pray tell did you only buy one bike and sold it for profit out of company money incurring tax? Why not with your own? Just out of interest of course.

I'm sure you can think about a few plausible reasons?

Over time I hope to invest a decent amount of Ltd money in bikes, it's what I know about, whereas I know diddly about shares.

No comment re-lending money to self .....noted

[Wanderer]

Surely you have to pay the tax at some point anyway so why leave it there if you need it?

If you need the money then you take it out and pay the higher rate tax. But if you don't need it immediately then it may be worth retaining it.

If a contractor takes a break from work, becomes ill, takes a big pay cut or for whatever reason they earns less than the higher rate threshold for some future tax year then they can draw on funds retained in the company to top up their income and not incur the higher rate tax penalty.

Retained funds could also be used as capital to expand the business at some future date - we are all business people, right?

[northernladuk]

Zip it!
There were two posts that didn't talk about what bikes are cool or an investment etc.

1. Justifying to HMRC that the collection is a business interest (should they come asking) which should be rational to overcome
2. The collection will be a company asset and not yours so will need more specialist insurance, storage and if they were to be used in any way I don't know how that would be treated, Benefit in Kind?
3. If sold the profits are company profits and not yours
4. If you close the company then the collection would have to be sold for a fair price as company assets

AND

I'd love to indulge in something like this at my company's expense but my concern is that this would be seen as a loss making hobby than a legitimate company investment.

Also, what business use could we claim for the bikes? Would we ever ride them? Would this be business or private mileage? Or would we just fudge over this and not declare it? Park the bikes and never ride them?

I really doubt that HMRC would see it as a legitimate business expense especially if it's completely unrelated to the company's core business.

So I've done it, used company money to buy a classic bike, I sold it and my Ltd made a profit, my Ltd now owns another bike and will buy more. It's very much a sideline and purely and investment tool - like buying gold or art.

Regarding lending money to myself - pray tell what on earth you think is wrong with that?

You really do wind me up, I seldom comment but then again I seldom post and when I do you've put your foot it in it once before.

And they were about the only posts that actually talked about the business end although it was a good discussion about old bikes. You made a profit well done, why pray tell did you only buy one bike and sold it for profit out of company money incurring tax? Why not with your own? Just out of interest of course.

[Olly]

So you went ahead and did this then. Only the OP actually agreed it may possibly work with everyone else throwing up warnings? And loaning yourself the money from the company? You don't half run a fine line!!!

http://forums.contractoruk.com/accou...lection-3.html

Zip it!
There were two posts that didn't talk about what bikes are cool or an investment etc.

1. Justifying to HMRC that the collection is a business interest (should they come asking) which should be rational to overcome
2. The collection will be a company asset and not yours so will need more specialist insurance, storage and if they were to be used in any way I don't know how that would be treated, Benefit in Kind?
3. If sold the profits are company profits and not yours
4. If you close the company then the collection would have to be sold for a fair price as company assets

AND

I'd love to indulge in something like this at my company's expense but my concern is that this would be seen as a loss making hobby than a legitimate company investment.

Also, what business use could we claim for the bikes? Would we ever ride them? Would this be business or private mileage? Or would we just fudge over this and not declare it? Park the bikes and never ride them?

I really doubt that HMRC would see it as a legitimate business expense especially if it's completely unrelated to the company's core business.

So I've done it, used company money to buy a classic bike, I sold it and my Ltd made a profit, my Ltd now owns another bike and will buy more. It's very much a sideline and purely and investment tool - like buying gold or art.

Regarding lending money to myself - pray tell what on earth you think is wrong with that?

You really do wind me up, I seldom comment but then again I seldom post and when I do you've put your foot it in it once before.

[northernladuk]

Exactly the same "plan" I have. If in later years I choose to start putting some into a pension then that option is there. If I need a lump sum I can take the tax hit. If I go perm I can wind up the company and pay 10%(ish)
In the meantime my company is investing a fleet of classic motor bikes and will loan me money to put in my offset mortgage

Simples

So you went ahead and did this then. Only the OP actually agreed it may possibly work with everyone else throwing up warnings? And loaning yourself the money from the company? You don't half run a fine line!!!

http://forums.contractoruk.com/accou...lection-3.html

[ddolheguy]

Do you?

What if I only ever pay myself a wage under the NI threshold and only ever take divis to the max amount (currently 42475 in total for both elements including divi credit) before paying more tax?

The tax has been paid. There is nothing left to pay. Or am I missing something fundamental.

The super long term plan for me, since basiically every year I contract i get two years of wage/divis (at the amount i suggested above) is to work for another x years and then semi-retire potting about for my ltd co doing "something".. like posting on these forums.

Oh course you have to pay Corporate Tax on the profits each year also (which includes your divs), which is a hit of 20% (ouch).

[Olly]

Do you?

What if I only ever pay myself a wage under the NI threshold and only ever take divis to the max amount (currently 42475 in total for both elements including divi credit) before paying more tax?

Exactly the same "plan" I have. If in later years I choose to start putting some into a pension then that option is there. If I need a lump sum I can take the tax hit. If I go perm I can wind up the company and pay 10%(ish)
In the meantime my company is investing a fleet of classic motor bikes and will loan me money to put in my offset mortgage

Simples

[prozak]

Surely you have to pay the tax at some point anyway so why leave it there if you need it? .

Do you?

What if I only ever pay myself a wage under the NI threshold and only ever take divis to the max amount (currently 42475 in total for both elements including divi credit) before paying more tax?

The tax has been paid. There is nothing left to pay. Or am I missing something fundamental.

The super long term plan for me, since basiically every year I contract i get two years of wage/divis (at the amount i suggested above) is to work for another x years and then semi-retire potting about for my ltd co doing "something".. like posting on these forums.

[Scrag Meister]

Thanks for that and your right, it's not hugh, although I'm happy with what i've managed to retain in the company so far. I more just don't want to make the wrong decision and end up paying 10% more tax than I need to.

FTFY

[craig1]

The best thing to do is either

1) Sit on the money in some sort of bonds. Even if you are getting something like 0.5% or 1%, It will take years for the inflation to devalue to the extent of extra tax liability as suggested earlier.
2) Use Director's loan early in the year, invest in bonds, as personal bonds pay you more interest than business. Towards the end, repay the director's loan, so there is no penalty. Repeat this after some time. Speak to your accountant to make sure, you know what you are doing.
3) Open another subsidiary company and invest in that company. Use this as a plan B vehicle.
4) Open a SIPP and use that to invest for long term.


This is what I have been thinking so far. There is no quick way to beat the tax system, so need to plan accordingly. If you are in for a short game, then take the hit and cash out.

HTH.
Dave.

A point for discussion here rather than a definitive statement: Surely you have to pay the tax at some point anyway so why leave it there if you need it? Even if you whip out an extra amount to fill up your cash ISA limit each year then you'll make far more tax-free money than a pathetic business saver acct if you treat tax as neutral.

[rd409]

The best thing to do is either

1) Sit on the money in some sort of bonds. Even if you are getting something like 0.5% or 1%, It will take years for the inflation to devalue to the extent of extra tax liability as suggested earlier.
2) Use Director's loan early in the year, invest in bonds, as personal bonds pay you more interest than business. Towards the end, repay the director's loan, so there is no penalty. Repeat this after some time. Speak to your accountant to make sure, you know what you are doing.
3) Open another subsidiary company and invest in that company. Use this as a plan B vehicle.
4) Open a SIPP and use that to invest for long term.


This is what I have been thinking so far. There is no quick way to beat the tax system, so need to plan accordingly. If you are in for a short game, then take the hit and cash out.

HTH.
Dave.

[ddolheguy]

There cannot be that much in there unless you are a monster daily rate (something I am doubting). Remember as previously mentioned that you have to leave Corp Tax and VAT in there. You can only divi from profits.

I would give up with any fancy idea's of re-investing. We have gone over everything we can possibly think of to re-invest the money and nothing seems to work well. I think a few guys invest in stocks but houses, cars, collectibles, mortgages.. nothing seemed to work.

Get yourself a warchest up first for when you are on the bench and sit happy on that for the time being.

Thanks for that and your right, it's not hugh, although I'm happy with what i've saved so far. I more just don't want to make the wrong decision and end up paying 10% more tax than I need to.

[northernladuk]

There cannot be that much in there unless you are a monster daily rate (something I am doubting). Remember as previously mentioned that you have to leave Corp Tax and VAT in there. You can only divi from profits.

I would give up with any fancy idea's of re-investing. We have gone over everything we can possibly think of to re-invest the money and nothing seems to work well. I think a few guys invest in stocks but houses, cars, collectibles, mortgages.. nothing seemed to work.

Get yourself a warchest up first for when you are on the bench and sit happy on that for the time being.

[prozak]

Leave it in the company for a rainy day or for when you "retire" early or wind up the company.

or use it in the company and branch out with another business idea.

It might not be getting much interest but how many years inflation is it going to take before you lose 25%?

[craig1]

Or alternatively, you could take the hit and take it out at the higher rate of taxation. You'll have to take it out eventually and pay the tax, meanwhile you're generating a pathetic interest rate from your business "savings" account, essentially losing money compared to inflation even before the tax on the interest you pay.

There's no point in bringing in lots of high daily rates if you're just going to sit and sigh at how big your business bank balance is while living on a far lower income.