entrepreneurs Relief confusion.

[GhostofTarbera]

Yes, I have never topped up any tax year; only this year.

Probably lost £15K of the £40K in the last 10 days then


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[heyya99]

You mean topping up pension? If it is then it's truly awful advice.

Yes, I have never topped up any tax year; only this year.

[northernladuk]

I maxed out my 40k for this tax year but my accountant said that I shouldn't avoid topping up the previous tax years as it'll look like tax avoidance (as I'm going to MVL in June). What do ye make of this advice?

You mean topping up pension? If it is then it's truly awful advice.

[heyya99]

That some people have a lot more money than you in their company's warchest and are looking for a way to extract it without hitting the higher dividend tax rate.

They might have already hit their £40K pension contribution (and not have any carry-forward) or not want to lock the funds away in a pension.

I maxed out my 40k for this tax year but my accountant said that I shouldn't avoid topping up the previous tax years as it'll look like tax avoidance (as I'm going to MVL in June). What do ye make of this advice?

[ChimpMaster]

Spread your dividend payment over this tax year and next tax year. Easy to do seeing as you only have £8k income this year and next FY is just around the corner. Bob's your uncle. Or your accountant.

Either way - keep family out of your business.

[northernladuk]

Thanks Lance.
I thought I understood it but talking to accountant cousin left me a touch confused.

Tip for going forward. Keep your family out of your business....

[rnsuk]

stop messing about. You're over-thinking it. And you seem to understand it.

Pay the whole lot as dividends (minus any expenses, accountancy fees etc).
You'll have to pay 32.5% tax on the top 6k only (that's <£2k cost), and 7.5% on the rest (total c. £5k)
If you MVL you'll have to pay MVL fees of around £2k, and tax of 10% on £40k. That's £6k cost.

Or stick enough into pension to drop it down by £8k, and pay the rest as divis.

5k or 6k and a lot of messing around. Whatever you do, do it fast.


EDIT: you also have £2k of tax free dividends after April 6th.

Thanks Lance.
I thought I understood it but talking to accountant cousin left me a touch confused.

[Lance]

Guys

I talked to an accountant and am none the wiser so am asking here. (Accountant is a cousin and I don't want him to think (or find out) that I am stupid.

I intend to stop contracting on the 3rd of April and close my company soon after.
I have available cash of £50k after taking care of corporation tax.
As I have only earned 8k this year, I could take all the rest as dividends and pay 7.5% BUT that takes me to Higher rate tax band so I can go up to the edge of Basic Rate put the rest in my SIPP (via the employer contribution)
People are talking about using EA to bring the Tax down to 10% but Dividends are only 7.5%
What am I not understanding?

stop messing about. You're over-thinking it. And you seem to understand it.

Pay the whole lot as dividends (minus any expenses, accountancy fees etc).
You'll have to pay 32.5% tax on the top 6k only (that's <£2k cost), and 7.5% on the rest (total c. £5k)
If you MVL you'll have to pay MVL fees of around £2k, and tax of 10% on £40k. That's £6k cost.

Or stick enough into pension to drop it down by £8k, and pay the rest as divis.

5k or 6k and a lot of messing around. Whatever you do, do it fast.


EDIT: you also have £2k of tax free dividends after April 6th.

[northernladuk]

Tons and tons of threads of MVL to get you up to speed. Many talk about amounts like you. The advice at your level appears to be do what you can to get it to 25k and don't bother with MVL but that highly depends on what you've already paid. Pension and dividends often does the trick.

mvl site:contractoruk.com/forums - Google Search

[Paralytic]

What am I not understanding?

That some people have a lot more money than you in their company's warchest and are looking for a way to extract it without hitting the higher dividend tax rate.

They might have already hit their £40K pension contribution (and not have any carry-forward) or not want to lock the funds away in a pension.

[rnsuk]

Guys

I talked to an accountant and am none the wiser so am asking here. (Accountant is a cousin and I don't want him to think (or find out) that I am stupid.

I intend to stop contracting on the 3rd of April and close my company soon after.
I have available cash of £50k after taking care of corporation tax.
As I have only earned 8k this year, I could take all the rest as dividends and pay 7.5% BUT that takes me to Higher rate tax band so I can go up to the edge of Basic Rate put the rest in my SIPP (via the employer contribution)
People are talking about using EA to bring the Tax down to 10% but Dividends are only 7.5%
What am I not understanding?