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Advice on tax / dividends etc

SporadicAddickSporadicAddick
edited November 2018 in Not Sports Related
I'd really appreciate any guidance from business owners / business accountants on here.

I had the opportunity in the last few months to do some consultancy work. I set up a limited company with me as sole director and my wife as sole shareholder. All of the work that I wanted to do is now finished so I want to close down the business and extract the profits as efficiently as possible.

The business is very simple, I issued two invoices which have been paid and incurred limited (mileage) expenses.

During the course of the financial year I have been employed elsewhere and have paid full NI contributions etc during that time.

There are two questions:-
1. I haven't paid myself a wage during the consulting period. I am a higher rate tax payer and my wife is a non tax payer. After payment of corporation tax and any other liabilities, can my wife, as sole shareholder, draw down the balance of the companies funds as a dividend and declare the income through a tax return (in other words, can we get to maximise her tax allowance whilst not touching my higher rate liability, even if I was a (non paid) director of the company).

2. As a relatively straightforward / non complex business, is it easy to complete my company returns on line, or is it best to get an accountant to do them on my behalf? I've had a quote of £300, I'd rather not spend that if its a simple process.


Any thoughts or comments much appreciated.
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Comments

  • CafcWestCafcWest
    I also have a small Limited company. I will be closing it down later this year or next year. My accountant said that the best way to do this is to make it insolvent. This means paying an insolvency service but that means that you would be able to take X amount tax-free and then the balance would be taxable at a lower rate. A lot depends on the amount of money in the company. I would get an accountant if you have a reasonable amount of cash in the company.
  • kentaddickkentaddick
    edited November 2018
    SporadicAddick said:

    I'd really appreciate any guidance from business owners / business accountants on here.

    I had the opportunity in the last few months to do some consultancy work. I set up a limited company with me as sole director and my wife as sole shareholder. All of the work that I wanted to do is now finished so I want to close down the business and extract the profits as efficiently as possible.

    The business is very simple, I issued two invoices which have been paid and incurred limited (mileage) expenses.

    During the course of the financial year I have been employed elsewhere and have paid full NI contributions etc during that time.

    There are two questions:-
    1. I haven't paid myself a wage during the consulting period. I am a higher rate tax payer and my wife is a non tax payer. After payment of corporation tax and any other liabilities, can my wife, as sole shareholder, draw down the balance of the companies funds as a dividend and declare the income through a tax return (in other words, can we get to maximise her tax allowance whilst not touching my higher rate liability, even if I was a (non paid) director of the company).

    2. As a relatively straightforward / non complex business, is it easy to complete my company returns on line, or is it best to get an accountant to do them on my behalf? I've had a quote of £300 and, whilst not a lot, its £300 that I don't have to spend if its a simple process.


    Any thoughts or comments much appreciated.

    A (new) business owner but my understanding:

    1. Yes, your wife will have to declare to take a dividend, this will have to be a recorded meeting with minutes, but can literally be “I’m going to take x amount in dividends, I vote to say that’s okay” etc. There are templates you can find online. Atm you can take £2,000 tax free. After that it’s taxed at 7.5% if you’re a basic rate payer. This would be declared on your tax return. If your wife is a higher rate payer it’s 32.5% after £5,000 iirc, not sure as I’m a basic rate payer.

    2. Id recommend getting an accountant, there are accountants on here but £300 for going back on to a company’s accounts seems fairly reasonable. But there are cheap options out there like theaccountancypartnership cheap accounting etc. They’ll also be able to advise on the above and the most tax efficient way of doing things.

  • GoonerhaterGoonerhater
    edited November 2018
    £300 is cheap and the year end company report is easy to naff up --- i think HMRC are less likely to pay much attention if a registered accountancy firm is involved in preparing and submitting----dont be late or they are instant with the fines re not filing unless your the EU who dont bother or Facebook etc
  • AddicktedAddickted
    How about just paying the tax and NI on the income you earned?
  • kentaddickkentaddick
    Addickted said:

    How about just paying the tax and NI on the income you earned?

    He is, or at least his company is paying corporation tax. Then 7.5% on the dividends above £2,000 effectively being taxed twice on the same money which shouldn’t really happen, but that’s more of a bugbear with the new dividends tax.

    He can then choose to pay voluntary NI as many people in the same position do.

    Or are you saying company owners, who take on all the risk shouldn’t be given any incentives or relief for that risk?
  • AlwaysneilAlwaysneil
    1) if your wife is the sole shareholder she will receive all the dividends paid by the company.

    2) pay the accountant.
  • kentaddickkentaddick
    SporadicAddick said:

    Addickted said:

    How about just paying the tax and NI on the income you earned?

    Because as a director its my legal duty to maximise shareholder returns.

    I knew they'd be one.....

    ps I'm fortunate enough to have earned half decent money for a few years and have paid c. £0.5m income tax in the last decade. The consultancy work I did also created 19 jobs for people that had recently been made redundant, thereby removing them from benefits and allowing them to pay tax.
    Even from a moral stand point, you don’t have access to the same state benefits as PAYE worker as well as holiday and sick pay. Which is why you would not pay as much NI.
  • _MrDick_MrDick
    I set up my small limited company in August. I have a pension so the income I earn sits in the company as profit. I do pay myself just a nominal monthly salary of £702. That way I don't pay NI just income tax at the basic rate. At the end of the tax year, I'll take a dividend that's just enough to keep me out of the high tax band. If the work dries up, I'll just draw down dividends until it's insolvent.
  • stevexreevestevexreeve
    I've always wondered why unions don't make it simple for their members to turn themselves into companies and just pay themselves dividends. I guess it would not work so well for stable jobs like nursing but so many people on short contracts have no real security or benefits from being in a "job" these days. It does seem to be something only for the elite!
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  • kentaddickkentaddick
    stevexreeve said:

    I've always wondered why unions don't make it simple for their members to turn themselves into companies and just pay themselves dividends. I guess it would not work so well for stable jobs like nursing but so many people on short contracts have no real security or benefits from being in a "job" these days. It does seem to be something only for the elite!

    Because all the benefits of being employed over self employed have been won by unions.

    Ah yes, those elite electricians, sign makers, plumbers and construction workers. They have no idea what it’s like to be working class...!
  • IdleHansIdleHans
    _MrDick said:

    I set up my small limited company in August. I have a pension so the income I earn sits in the company as profit. I do pay myself just a nominal monthly salary of £702. That way I don't pay NI just income tax at the basic rate. At the end of the tax year, I'll take a dividend that's just enough to keep me out of the high tax band. If the work dries up, I'll just draw down dividends until it's insolvent.

    If the work dries up, make yourself redundant and get up to £30k free of tax and NIC.

    NB: This might not be strictly legit.
  • RaplhMilneRaplhMilne
    Addickted said:

    How about just paying the tax and NI on the income you earned?

    Don't tell any one but he's a member of Take That ! It's ok Gary secret safe with us.
  • cafc999cafc999
    Get an accountant. It will be worth every penny
  • HardyAddickHardyAddick
    Entrepreneurs relief if you close down the company is 10% of any net drawings. Up to £25k an accountant can do it. Over 25k and an insolvency practitioner has to do it. I would talk to an accountant.
  • redmanredman
    edited November 2018
    kentaddick said:

    SporadicAddick said:

    I'd really appreciate any guidance from business owners / business accountants on here.

    I had the opportunity in the last few months to do some consultancy work. I set up a limited company with me as sole director and my wife as sole shareholder. All of the work that I wanted to do is now finished so I want to close down the business and extract the profits as efficiently as possible.

    The business is very simple, I issued two invoices which have been paid and incurred limited (mileage) expenses.

    During the course of the financial year I have been employed elsewhere and have paid full NI contributions etc during that time.

    There are two questions:-
    1. I haven't paid myself a wage during the consulting period. I am a higher rate tax payer and my wife is a non tax payer. After payment of corporation tax and any other liabilities, can my wife, as sole shareholder, draw down the balance of the companies funds as a dividend and declare the income through a tax return (in other words, can we get to maximise her tax allowance whilst not touching my higher rate liability, even if I was a (non paid) director of the company).

    2. As a relatively straightforward / non complex business, is it easy to complete my company returns on line, or is it best to get an accountant to do them on my behalf? I've had a quote of £300 and, whilst not a lot, its £300 that I don't have to spend if its a simple process.


    Any thoughts or comments much appreciated.

    A (new) business owner but my understanding:

    1. Yes, your wife will have to declare to take a dividend, this will have to be a recorded meeting with minutes, but can literally be “I’m going to take x amount in dividends, I vote to say that’s okay” etc. There are templates you can find online. Atm you can take £2,000 tax free. After that it’s taxed at 7.5% if you’re a basic rate payer. This would be declared on your tax return. If your wife is a higher rate payer it’s 32.5% after £5,000 iirc, not sure as I’m a basic rate payer.

    2. Id recommend getting an accountant, there are accountants on here but £300 for going back on to a company’s accounts seems fairly reasonable. But there are cheap options out there like theaccountancypartnership cheap accounting etc. They’ll also be able to advise on the above and the most tax efficient way of doing things.

    Depending on the amount of money you are talking about, dividends don't all have to be paid in one year. So a dividend could be declared in current tax year and some more next tax year. So for instance if there is £4,000 she could declare £2,000 for 2 years and pay no tax. Bigger saving could be made by spreading if declaring all in one year would mean she would go into higher tax bracket.
  • kentaddickkentaddick
    redman said:

    kentaddick said:

    SporadicAddick said:

    I'd really appreciate any guidance from business owners / business accountants on here.

    I had the opportunity in the last few months to do some consultancy work. I set up a limited company with me as sole director and my wife as sole shareholder. All of the work that I wanted to do is now finished so I want to close down the business and extract the profits as efficiently as possible.

    The business is very simple, I issued two invoices which have been paid and incurred limited (mileage) expenses.

    During the course of the financial year I have been employed elsewhere and have paid full NI contributions etc during that time.

    There are two questions:-
    1. I haven't paid myself a wage during the consulting period. I am a higher rate tax payer and my wife is a non tax payer. After payment of corporation tax and any other liabilities, can my wife, as sole shareholder, draw down the balance of the companies funds as a dividend and declare the income through a tax return (in other words, can we get to maximise her tax allowance whilst not touching my higher rate liability, even if I was a (non paid) director of the company).

    2. As a relatively straightforward / non complex business, is it easy to complete my company returns on line, or is it best to get an accountant to do them on my behalf? I've had a quote of £300 and, whilst not a lot, its £300 that I don't have to spend if its a simple process.


    Any thoughts or comments much appreciated.

    A (new) business owner but my understanding:

    1. Yes, your wife will have to declare to take a dividend, this will have to be a recorded meeting with minutes, but can literally be “I’m going to take x amount in dividends, I vote to say that’s okay” etc. There are templates you can find online. Atm you can take £2,000 tax free. After that it’s taxed at 7.5% if you’re a basic rate payer. This would be declared on your tax return. If your wife is a higher rate payer it’s 32.5% after £5,000 iirc, not sure as I’m a basic rate payer.

    2. Id recommend getting an accountant, there are accountants on here but £300 for going back on to a company’s accounts seems fairly reasonable. But there are cheap options out there like theaccountancypartnership cheap accounting etc. They’ll also be able to advise on the above and the most tax efficient way of doing things.

    Depending on the amount of money you are talking about, dividends don't all have to be paid in one year. So a dividend could be declared in current tax year and some more next tax year. So for instance if there is £4,000 she could declare £2,000 for 2 years and pay no tax. Bigger saving could be made by spreading if declaring all in one year would mean she would go into higher tax bracket.
    You can pay dividends whenever you want, it’s just the company needs to be in profit or have reserves for you to do it.
  • jac52jac52
    Definitely get an accountant but if it's not too late I'd suggest paying your wife a salary for her "admin work" up to her tax free allowance then also declaring a dividend to her out of your remaining profits/reserves. This would also reduce your corporation tax as her salary cost will be treated as an expense to the business.

    If you aren't in desperate need of the cash you could also consider splitting payments until the next tax year to take advantage of her 2019/20 income tax and dividend allowances.

  • golfaddickgolfaddick
    kentaddick said:

    Addickted said:

    How about just paying the tax and NI on the income you earned?

    He is, or at least his company is paying corporation tax. Then 7.5% on the dividends above £2,000 effectively being taxed twice on the same money which shouldn’t really happen, but that’s more of a bugbear with the new dividends tax.

    He can then choose to pay voluntary NI as many people in the same position do.

    Or are you saying company owners, who take on all the risk shouldn’t be given any incentives or relief for that risk?
    He isn't a company owner though is he. Already had another job elsewhere this year & did a bit of work (2 invoices) on the side...with limited mileage. Now wants to "play with the rules" and let his non earning wife take the income. She has done nothing/zilch/nada with regard to this "business". It may well be all by the book, but as an ifa I wouldn't do it.
  • jac52jac52
    Married couples can already benefit from certain tax benefits (e.g. shared capital allowance), do you take issue with that as well? If things are done by the book then I'm not sure what the problem is or do you like giving our government more money to piss away on wars and public sector pensions?
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  • golfaddickgolfaddick
    jac52 said:

    Married couples can already benefit from certain tax benefits (e.g. shared capital allowance), do you take issue with that as well? If things are done by the book then I'm not sure what the problem is or do you like giving our government more money to piss away on wars and public sector pensions?

    No, I'd like to give our Government money to spend on policing, housing & infrastructure. But if you think it's morally right to "earn" money that in all rights belongs to the person who actually did the work and thereby deprive the population these basic necessaties then crack on.

  • AddicktedAddickted
    golfaddick said:

    jac52 said:

    Married couples can already benefit from certain tax benefits (e.g. shared capital allowance), do you take issue with that as well? If things are done by the book then I'm not sure what the problem is or do you like giving our government more money to piss away on wars and public sector pensions?

    No, I'd like to give our Government money to spend on policing, housing & infrastructure. But if you think it's morally right to "earn" money that in all rights belongs to the person who actually did the work and thereby deprive the population these basic necessaties then crack on.

    Which was my point.

    I suspect that even paying full income tax and NI contributions on this earned income wouldn't be significantly more than trying to utilise any number of these tax avoidance schemes.
  • SporadicAddickSporadicAddick
    Addickted said:

    golfaddick said:

    jac52 said:

    Married couples can already benefit from certain tax benefits (e.g. shared capital allowance), do you take issue with that as well? If things are done by the book then I'm not sure what the problem is or do you like giving our government more money to piss away on wars and public sector pensions?

    No, I'd like to give our Government money to spend on policing, housing & infrastructure. But if you think it's morally right to "earn" money that in all rights belongs to the person who actually did the work and thereby deprive the population these basic necessaties then crack on.

    Which was my point.

    I suspect that even paying full income tax and NI contributions on this earned income wouldn't be significantly more than trying to utilise any number of these tax avoidance schemes.
    Actually it would make a material difference as it would move me, this year, fully into the situation explained in the attached.

    https://www.ft.com/content/622ff86c-d16e-11e5-92a1-c5e23ef99c77

  • SporadicAddickSporadicAddick
    Apologies if that link doesn't provide content. Try this one instead

    https://www.telegraph.co.uk/finance/personalfinance/tax/10828657/Tax-system-flaws-leave-professionals-paying-60-per-cent.html

  • AddicktedAddickted
    SporadicAddick said:

    Apologies if that link doesn't provide content. Try this one instead

    https://www.telegraph.co.uk/finance/personalfinance/tax/10828657/Tax-system-flaws-leave-professionals-paying-60-per-cent.html

    Thanks for that @SporadicAddick - I wasn't aware of that and not heard of it before. Seems crazy that just for that 21k you pay an additional £3,150 in income tax.

    To be honest, I'm being slightly hypocritical as I utilise 'salary sacrifice' to boost my pension pot and reduce my tax, but I do know that at least this will be taxed when I start to draw it down.


  • redmanredman
    Addickted said:

    SporadicAddick said:

    Apologies if that link doesn't provide content. Try this one instead

    https://www.telegraph.co.uk/finance/personalfinance/tax/10828657/Tax-system-flaws-leave-professionals-paying-60-per-cent.html


    To be honest, I'm being slightly hypocritical as I utilise 'salary sacrifice' to boost my pension pot and reduce my tax, but I do know that at least this will be taxed when I start to draw it down.


    Firstly this is incorrect. You do not reduce tax by doing salary sacrifice, you only save National Insurance. You may save the problem of having to pay tax and then reclaim it depending on how everything is set up.
    Secondly I don't consider it hypocritical. Successive governments have continually put and tightened limits on pension tax benefits.The salary sacrifice is something that is widely used by most employers and is well known and accepted by governments.
  • golfaddickgolfaddick
    SporadicAddick said:

    Apologies if that link doesn't provide content. Try this one instead

    https://www.telegraph.co.uk/finance/personalfinance/tax/10828657/Tax-system-flaws-leave-professionals-paying-60-per-cent.html

    Easy way to avoid that then....earn less money !!

    I deal with Doctors & the NHS Pension Scheme. Bloody nitemare for anyone earning over £110k.....and esp if earnings exceed £150k as you then start losing some of your Annual Allowance. Then there is an excess tax charge & "scheme pays" rules. Either suck it up & pay the tax or don't earn so much. Your choice.
  • Rob7LeeRob7Lee
    redman said:

    Addickted said:

    SporadicAddick said:

    Apologies if that link doesn't provide content. Try this one instead

    https://www.telegraph.co.uk/finance/personalfinance/tax/10828657/Tax-system-flaws-leave-professionals-paying-60-per-cent.html


    To be honest, I'm being slightly hypocritical as I utilise 'salary sacrifice' to boost my pension pot and reduce my tax, but I do know that at least this will be taxed when I start to draw it down.


    Firstly this is incorrect. You do not reduce tax by doing salary sacrifice, you only save National Insurance. You may save the problem of having to pay tax and then reclaim it depending on how everything is set up.
    Secondly I don't consider it hypocritical. Successive governments have continually put and tightened limits on pension tax benefits.The salary sacrifice is something that is widely used by most employers and is well known and accepted by governments.
    I agree it's not hypocritical but NI is a tax is it not? All perfectly legal and above board.

    The 60% is actually now on earnings between 100,000 and 123,700, i.e. twice the personal allowance of 11,850. So you pay an additional 4,740 in tax between those amounts over and above the 40%. So on the 23,700 you pay 14,220 income tax. Labours plans for an additional 5% would have seen tax on the 23,700 of 15,450 (65%) or 15,879 if you include NI. I.E. more than two thirds would be taken in tax.
  • redmanredman
    Rob7Lee said:

    redman said:

    Addickted said:

    SporadicAddick said:

    Apologies if that link doesn't provide content. Try this one instead

    https://www.telegraph.co.uk/finance/personalfinance/tax/10828657/Tax-system-flaws-leave-professionals-paying-60-per-cent.html


    To be honest, I'm being slightly hypocritical as I utilise 'salary sacrifice' to boost my pension pot and reduce my tax, but I do know that at least this will be taxed when I start to draw it down.


    Firstly this is incorrect. You do not reduce tax by doing salary sacrifice, you only save National Insurance. You may save the problem of having to pay tax and then reclaim it depending on how everything is set up.
    Secondly I don't consider it hypocritical. Successive governments have continually put and tightened limits on pension tax benefits.The salary sacrifice is something that is widely used by most employers and is well known and accepted by governments.
    I agree it's not hypocritical but NI is a tax is it not? All perfectly legal and above board.

    The 60% is actually now on earnings between 100,000 and 123,700, i.e. twice the personal allowance of 11,850. So you pay an additional 4,740 in tax between those amounts over and above the 40%. So on the 23,700 you pay 14,220 income tax. Labours plans for an additional 5% would have seen tax on the 23,700 of 15,450 (65%) or 15,879 if you include NI. I.E. more than two thirds would be taken in tax.
    Yes it is a tax. However I was trying to highlight it is not saving at income tax rates of 20%, 40% or 45%. For many individuals earning above UEL (about 40K now?) it is only saving 2% directly. However employers save for 12.8%: some companies keep, some share with employees and some pass fully onto employees. For owner/employees they can manage to keep for themselves.
  • SporadicAddickSporadicAddick
    golfaddick said:

    SporadicAddick said:

    Apologies if that link doesn't provide content. Try this one instead

    https://www.telegraph.co.uk/finance/personalfinance/tax/10828657/Tax-system-flaws-leave-professionals-paying-60-per-cent.html

    Easy way to avoid that then....earn less money !!

    I deal with Doctors & the NHS Pension Scheme. Bloody nitemare for anyone earning over £110k.....and esp if earnings exceed £150k as you then start losing some of your Annual Allowance. Then there is an excess tax charge & "scheme pays" rules. Either suck it up & pay the tax or don't earn so much. Your choice.
    Child benefit allowance creates a similar solution. I have people in my business that work hard to get a salary increase and then earn less as they lose child benefit. Any taxation system that encourages people to be less productive (within the existing set up) is clearly nonsense.
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