Reply to: Moving from Limited to Umbrella (Tax/Dividends Question)

[peteski22]

Lisa has hit the nail on the head there! With a decent accountant, there should never be any doubt as to how much money you can draw from your company. If you are not in that position as a company director then you need to have a long talk with your accountant and tell them that you want a system whereby you can see where you stand on a daily basis. If they can't do that then there are lots of other accounts who can.

Oooh, look here's one now.



Like Craig says, if you max out your dividends on 6th April then you will probably get caned for 40% tax + employee's NI plus employer's NI when you switch to umbrella leaving you with a net take home pay of <50% of your gross contract value or alternatively, a huge tax bill when you do your self assessment so don't come crying to us when that happens.

Roger that.. Thanks for all the replies, I'm off to get some information from said accountant.

[Wanderer]

I think your main problem was that you didn't have a very good accountant; if you decide to stay Ltd I would suggest you get in touch with one of the specialist contractor accountancy firms

Lisa has hit the nail on the head there! With a decent accountant, there should never be any doubt as to how much money you can draw from your company. If you are not in that position as a company director then you need to have a long talk with your accountant and tell them that you want a system whereby you can see where you stand on a daily basis. If they can't do that then there are lots of other accounts who can.

Oooh, look here's one now.

If you take a dividend up to higher rate tax threshold after 6th April, as soon as you earn anything through an umbrella you will create a tax liability on the dividends declared (dividends form your 'top slice' of income, in the majority of cases).

Like Craig says, if you max out your dividends on 6th April then you will probably get caned for 40% tax + employee's NI plus employer's NI when you switch to umbrella leaving you with a net take home pay of <50% of your gross contract value or alternatively, a huge tax bill when you do your self assessment so don't come crying to us when that happens.

[peteski22]

If you take a dividend up to higher rate tax threshold after 6th April, as soon as you earn anything through an umbrella you will create a tax liability on the dividends declared (dividends form your 'top slice' of income, in the majority of cases).

You will need to do a self-assessment return for 2013/14 if you are a director at any point during that year, there may however be other reasons that you need to complete a return in future years depending on how you income is made up.

Your accountant should be able to tell you how much you have available to take out of the company at any point, this is part of what you are paying them for! If you are intent on closing your company, and never return to trading as a limited company then there are moe tax efficient ways to get surplus funds from the company than by way of dividend, you may want to discuss these with your accountant...

Hope this helps!

Craig

Thanks Craig, yeah probably best having the discussion with the accountant - I only posted on here in case anyone had some experience in a similar situation and could give some helpful advice on what to be asking/doing. I'd not blast on ahead without speaking to the professionals.


Cheers

[peteski22]

You suspect you do AND you have set aside money for it?

I hope your planning is less woolly than you post.

Apologies, I meant that I will have to pay it, but I wasn't sure whether it would be when the company closed or when the company year end came (if the closure was in progress).

:P

[Craig at Nixon Williams]

If you take a dividend up to higher rate tax threshold after 6th April, as soon as you earn anything through an umbrella you will create a tax liability on the dividends declared (dividends form your 'top slice' of income, in the majority of cases).

You will need to do a self-assessment return for 2013/14 if you are a director at any point during that year, there may however be other reasons that you need to complete a return in future years depending on how you income is made up.

Your accountant should be able to tell you how much you have available to take out of the company at any point, this is part of what you are paying them for! If you are intent on closing your company, and never return to trading as a limited company then there are moe tax efficient ways to get surplus funds from the company than by way of dividend, you may want to discuss these with your accountant...

Hope this helps!

Craig

[jmo21]

I will have corporation tax to pay as part of closing my company down/company year end I suspect, I've already set aside money for all company related taxes though.

You suspect you do AND you have set aside money for it?

I hope your planning is less woolly than you post.

[northernladuk]

Make absolutely sure the bank account is empty before you close the company. Once you have closed the company you will not be able to use your LTD bank account again. Any money will go to the crown and you will have a very protracted process to re-open should you have made a mistake.

[peteski22]

Have you paid any/accrued for corporation tax?

I will have corporation tax to pay as part of closing my company down/company year end I suspect, I've already set aside money for all company related taxes though.

[peteski22]

The fact he thinks this is probably down to poor research or effort in understanding his situation so a brollie is most definately the best bet.

Hopefully I cleared this up with the reply above, if not.. Just let me know and I'll have another go

Cheers

[peteski22]

I think your either confused or a sockie you don't get dividends when you use an umbrella, you become an employee of the umbrella so you just get normal PAYE same as any other employee

No, I'm aware that you can't get dividends as an employee under an umbrella, I meant.. take the dividend payment from my limited company > 5th April (start of the new tax year) and then afterwards, after starting to close down my company, move to an umbrella and get paid (PAYE) as per Joe Blogs.. I wanted to know if/what kind of impact that would have on my personal tax liability etc.

Thanks for the replies.

[stek]

Moving from Limited to Umbrella (Tax/Dividends Question)

Have you paid any/accrued for corporation tax?

[Pondlife]

I think your either confused or a sockie you don't get dividends when you use an umbrella, you become an employee of the umbrella so you just get normal PAYE same as any other employee

I think he's saying take divs from his existing Ltd, then close it down and THEN move to brolly for full PAYE. Meaning next Self Assessment would be for 100% PAYE plus what ever divs they managed to take out of current Ltd.

[northernladuk]

I think your either confused or a sockie you don't get dividends when you use an umbrella, you become an employee of the umbrella so you just get normal PAYE same as any other employee

The fact he thinks this is probably down to poor research or effort in understanding his situation so a brollie is most definately the best bet.

[Support Monkey]

I think your either confused or a sockie you don't get dividends when you use an umbrella, you become an employee of the umbrella so you just get normal PAYE same as any other employee

[LisaContractorUmbrella]

Hi all,

I'm coming up to the end of a year trading as a limited company and I must admit it's been a steep learning curve and quite a few headaches sorting things out (I won't blame my accountants ).

I was considering closing down my company and moving to an umbrella company. Obviously I want to do this in the most 'efficient' way possible, so what I was thinking was:

After April 5th 2013, take up to the maximum allowed for a dividend (I don't think I have that much in my business), then apply to close the company down (in order to efficiently get whatever might be left out etc.)... After this if I move to an umbrella, how would my tax etc. be effected by taking that dividend? Would I have to let HMRC know I'm not doing self assessment now? Do I still have to do self assessment?

I guess the biggest problem I had with Limited was that I didn't really know how much I could get out half the time (and that I couldn't accumulate enough to hire more people :P). So I'd like to be able to see if it would work out taking the money as a dividend then the umbrella sorting my PAYE each month - would I be on the higher rate instantly?

Thanks to anyone who has the time to reply, and manages to understand my ramblings.

Cheers
Pete

I think your main problem was that you didn't have a very good accountant; if you decide to stay Ltd I would suggest you get in touch with one of the specialist contractor accountancy firms. I am confused by your comment 'taking the money out as a dividend then the umbrella sorting my PAYE each month' - what do you mean exactly?