Should I trade as a Limited Company, umbrella or composite

[simondolan]

The only problem being if your monthly net income has to be something over £37k a year. In which case, I assume you take just enough dividends out to cover the shortfall and accept the higher-rate tax bill?

Yes - sometimes practical considerations have to take precedence over tax planning!

[Bradley]

You can't say that ...

3. Once the Company ceases trading (note the Company, not the individual), you can, as things stand, claim to have the accumulated reserves treated as a capital distribution and therefore take advantage of taper relief.

With the proviso that the individual cannot then incorporate a new company and start trading again.

5. If they do change the rules, and you have to pay out the remaining income as dividend you will be no worse off than if you had paid the dividends out as you went along.

You cannot say that with any certainty Simon. There is no guarantee. That was my point.

[DaveB]

With the proviso that the individual cannot then incorporate a new company and start trading again.


You cannot say that with any certainty Simon. There is no guarantee. That was my point.

And you can't say with any certainty that the rules will change. Or if they do that it will be detrimental. They might do, they might not.

As Simon said, you can only plan based on what you know is the situation at the time or what you have reasonable grounds to belive will be the situation in the forseable future.

This kind of paranoid double think will end up costing you in the long term and make you look like a complete twat in the short term.

[NewBoy]

This post has got well out of hand, although been very useful and mildly entertaining.

Simon is giving tax planning advice on what the current situation is today which is probably the safest bet and what you would expect a professional in the financial services indistry to advise.

However, what Bradley is saying is that it is worth trying to predict what might happen in the future if possible...which has some validity.

I would go with Simon in this instance, but that is just me, and even then this post has made me think about keeping one eye on the future which I wasn't doiung before...

So...surely both views are valid and it has been good to understand both sides...everyone just needs to decide which way they want to go.

Thank you both of you for giving the options.

[ASB]

What if, what if, what if - you cannot base tax planning on what if's. Even so, any rate changes cannot take effect retrospectively - any announcement would therefore give ample notice to take the funds out before the rate changes.

Whilst I beleive Simons approach is quite correct - can only really base on current rules - I am not really convinced by the assumption that any changes will be non retrospective.

The most recent changes to trusts are effectively retrospective.
The NCDR rate was retrospective in all but name. But irrelevant now anyway.
IR35 was retrospective in as much as "we'll apply it from April this year, and let you know what the rules are when we have decided".

There does seem to be a trend in closing doors and then announcing they have been been closed, thus there is a risk that one may be penalised under rules that don't yet exist.

[NoelWatson]

Pension question

It is becoming difficult to read this thread now, so perhaps a summary on this point would help:

1. The most tax efficient way of trading is using your own Ltd Company;

2. Currently, the most tax efficient way of distributing the income is to pay dividends/small salary to take you just under the Higher Rate threshold, and accumulate the balance within the Company

3. Once the Company ceases trading (note the Company, not the individual), you can, as things stand, claim to have the accumulated reserves treated as a capital distribution and therefore take advantage of taper relief.

4. The Govt might change the rules in the future which might mean this advice needs to change.

5. If they do change the rules, and you have to pay out the remaining income as dividend you will be no worse off than if you had paid the dividends out as you went along.

Is there a recommendation yet for the best amount of pension to contribute (percentage or absolute - assuming that you are happy with pensions) and whether this should be paid from by the individual or the company?

[simondolan]

Is there a recommendation yet for the best amount of pension to contribute (percentage or absolute - assuming that you are happy with pensions) and whether this should be paid from by the individual or the company?

Most tax efficient to pay from the Company (make sure the pension scheme is set up to receive employer contributions).

As to how much is a personal choice based on what you think you will need to retire on, and what projections you choose to believe are reasonable.

[Mustang]

Great discussion - many thanks Simon for initiating it!!


I am just trying to work out how I can get access to more money so that I can afford to draw a small salary and pay myself a large dividends. My CO is running well but personal finances are such that I need to draw a fair size salary to cover my outgoings.

Any pointers from anyone else on how the managed to make that transition (other than having capital in the first place).

[Ruprect]

Any pointers from anyone else on how the managed to make that transition (other than having capital in the first place).

Sell the Mustang, buy a mini

[ASB]

Great discussion - many thanks Simon for initiating it!!


I am just trying to work out how I can get access to more money so that I can afford to draw a small salary and pay myself a large dividends. My CO is running well but personal finances are such that I need to draw a fair size salary to cover my outgoings.

Any pointers from anyone else on how the managed to make that transition (other than having capital in the first place).

1) Reduce salary to 5k.
2) Draw salary.
3) Draw whatever else you need monthly {post to directors current a/c}
4) Vote dividend quarterly to cover the total of 3. {post to director current a/c}

At end of year ensure the directors account is not overdrawn.

Your salary doesn't need to cover your outgoings.