Reply to: How soon to take all profits as dividends

[rambaugh]

I sort of thought of putting it in high interest funds abroad (~9-10% p.a.) - of course, all the profits/interest then get repatriated back to the company in the UK, then I can plan all the personal tax implications later.
Has anyone tried this sort of thing?

I do see several issues with the strategy. The main financial one is the risk of adverse currency movements. Secondly, one would have to pay the pesky fx agent commissions on conversions when repatriating / sending funds back and forth. Also, when some percentage of the company's income is derived from investments HMRC may consider you an investment company and charge higher corporation tax - this is potentially a non / minor issue. Having said all that, I don't see why its not feasible. It would seek an accountants opninion if you we're serious.

Good to see some discussion on ideas other than simply leaving funds in a "warchest" which inevitablely exposes funds to inflation risk / negative compound effect.

[northernladuk]

I sort of thought of putting it in high interest funds abroad (~9-10% p.a.) - of course, all the profits/interest then get repatriated back to the company in the UK, then I can plan all the personal tax implications later.
Has anyone tried this sort of thing?

Have you put any thought in to this at all?

[yetanotherbob]

That's what I meant. I can't think of too many other reasons why a director would leave shareholders funds sitting dormant earning little or no interest unless of course they had a strategy for deploying capital for productive use.

I sort of thought of putting it in high interest funds abroad (~9-10% p.a.) - of course, all the profits/interest then get repatriated back to the company in the UK, then I can plan all the personal tax implications later.
Has anyone tried this sort of thing?

[psychocandy]

Must admit I dont see why you'd ever not use all your 42K allowance? Surely the best bet is to use this up as much as possible and bung it in an ISA/savings account.

Not sure if taking more out is the best idea unless you really need the money. Of course, best bet if personal situation allows is to pay 50/50 with the mrs so you both get to use the tax allowance.

Failing that anything over that might as well either bung in pension or leave there for the time being.

So NLUK - what do you do? Leave as much in company as possible? i.e thats your warchest rather than your own savings? Whats the advantage in that?

I know personal savings rates are crap but they're better than business ones...

[northernladuk]

Yeah yeah, apart from that I mean !!!

Very drole

What other reason do you need? If you keep the warchest in the bank you may have the chance to withdraw it at 10% if you ever shut the company down on top of withdrawing divis.

[Platypus]

How's this for a good reason...

Yeah yeah, apart from that I mean !!!

Very drole

[kingcook]

I see no reason to have a "warchest" in the company account instead of my own !

But I'm all ears.

How's this for a good reason...

With the end of the financial year fast approaching, personally I'd take the max possible without straying into the 40% tax band. This means that neither you nor the company have any more tax to pay over and above CT.

[Platypus]

One of them is called a warchest. Not sure why this is such a struggle for you.

I see no reason to have a "warchest" in the company account instead of my own !

But I'm all ears.

[northernladuk]

That's what I meant. I can't think of too many other reasons why a director would leave shareholders funds sitting dormant earning little or no interest unless of course they had a strategy for deploying capital for productive use.

One of them is called a warchest. Not sure why this is such a struggle for you.

[rambaugh]

If you're going to make a statement like that, please explain why.

If you mean to stop being personally taxed at 40% then I agree of course.

That's what I meant. I can't think of too many other reasons why a director would leave shareholders funds sitting dormant earning little or no interest unless of course they had a strategy for deploying capital for productive use.

[Platypus]

Keeping retained profits in the company and boxing off from further income tax is useful

If you're going to make a statement like that, please explain why.

If you mean to stop being personally taxed at 40% then I agree of course.

[rambaugh]

Keeping retained profits in the company and boxing off from further income tax is useful but I suppose the other downside of this strategy is that if you ever get sued by a company or client for negligence then the capital you've preserved in your company is at risk. This is why its advisable to have insurance if you're retaining your profit.

[Platypus]

What's the best approach to follow:
To withdraw all the profits as dividends as soon as one can or to keep part of the warchest in the company accounts...?

With the end of the financial year fast approaching, personally I'd take the max possible without straying into the 40% tax band. This means that neither you nor the company have any more tax to pay over and above CT.

With the limit for 40% tax being £42k, hopefully money is coming in to the company faster than it leaves. So your problem is how to get money out in a tax efficient way. I can't see any benefit in leaving it in the company while you're below the £42k limit.

N.B. My opinion only !!

[Clare@InTouch]

It also depends on how much tax you want to pay. You'll never get away from CT, but there are longer term strategies that could reduce your personal tax.

Withdraw enough to take you up to higher rates each year, meaning you'll pay no personal tax. The money that gets retained in the company can then either support you when you go off travelling for a year, or be taken as a capital gain on closure. The gain on closure can be taxed as low as 10%, compared to the 25% on higher rate dividends. You just need to take a long term view.

You could of course also use the retained money to buy property, invest in shares etc. but these are more complicated options that would potentially require more planning. Talk to an IFA & your accountant.

[northernladuk]

What's the best approach to follow:
To withdraw all the profits as dividends as soon as one can or to keep part of the warchest in the company accounts...?

Surely this is YOUR choice depending on YOUR situation. We cannot help with this. It isn't even in the newbie guides so I can't point you to some reading.

You know what a warchest is for so assess your own need for it and level and then act accordingly.