Advice on what to do with money in a limited company
Metatron said
Tue Mar 1 17:45 2022
Hi all
First post so hope i dont break any posting rules!
Ive had a limited company for several years now and have built up capital in it but switched to a perm role after the introduction of IR35 in the private sector. My salary is just below 100k and now im stuck. If i start drawing dividends and salary from my company in parallel i will go over the threshold and lose my tax free allowance. I know this is a nice place to be given the current climate and scarcity of resource but does anyone have any suggestions on how best to begin winding up my company without paying an exorbitant amount of tax every year
Thanks for any suggestions
Shamus said
Tue Mar 1 19:46 2022
Why would you pay tax every year?
You pay tax on earnings. If the money is just sitting in your company its already been taxed once. You only pay tax again if you take it out of the company.
Have you thought about talking to a financial advisor about using the money in the company to set up a pension? It would build over the years then on retirement you get a third of it tax free and an income for life.
Sometimes the third of the pot is all of the money you have actually put into it depending on how long its been in there.
I am not a financial advisor, this is not advice but it is something that you should perhaps consider.
Artois said
Tue Mar 1 21:11 2022
How much retained profits in the Company?
Metatron said
Wed Mar 2 19:29 2022
Hi
Over 150k
Leger said
Thu Mar 3 09:30 2022
Pensions sprung to my mind as well. Good advice from Shaun, well worth paying a financial advisor for tailored advice.
Truemanbrown said
Tue Sep 20 02:30 2022
If you want the money quickly, you can do a mixture of capital distribution and dividends.
You may as well use your dividend allowance of £2,000.
Next stage would be a capital distribution. If remaining accumulated profits are less than £25,000 then you do a capital distribution. The first £12,300 will be covered by your annual capital gains tax allowance. The remainder would be chargeable at 10% (if the distribution qualifies under the Business Asset Disposal Relief (formerly Entrepreneur's Relief)).
If remaining accumulated profits are more than £25,000 then you do a capital distribution but you would first have to go through the process of a Members Voluntary Liquidation which will cost between £1,500 to £2,000. Again, the first £12,300 will be covered by your annual capital gains tax allowance. The remainder would be chargeable at 10% (if the distribution qualifies under the Business Asset Disposal Relief (formerly Entrepreneur's Relief)).
Hi all
First post so hope i dont break any posting rules!
Ive had a limited company for several years now and have built up capital in it but switched to a perm role after the introduction of IR35 in the private sector. My salary is just below 100k and now im stuck. If i start drawing dividends and salary from my company in parallel i will go over the threshold and lose my tax free allowance. I know this is a nice place to be given the current climate and scarcity of resource but does anyone have any suggestions on how best to begin winding up my company without paying an exorbitant amount of tax every year
Thanks for any suggestions
You pay tax on earnings. If the money is just sitting in your company its already been taxed once. You only pay tax again if you take it out of the company.
Have you thought about talking to a financial advisor about using the money in the company to set up a pension? It would build over the years then on retirement you get a third of it tax free and an income for life.
Sometimes the third of the pot is all of the money you have actually put into it depending on how long its been in there.
I am not a financial advisor, this is not advice but it is something that you should perhaps consider.
Pensions sprung to my mind as well. Good advice from Shaun, well worth paying a financial advisor for tailored advice.
If you want the money quickly, you can do a mixture of capital distribution and dividends.
You may as well use your dividend allowance of £2,000.
Next stage would be a capital distribution. If remaining accumulated profits are less than £25,000 then you do a capital distribution. The first £12,300 will be covered by your annual capital gains tax allowance. The remainder would be chargeable at 10% (if the distribution qualifies under the Business Asset Disposal Relief (formerly Entrepreneur's Relief)).
If remaining accumulated profits are more than £25,000 then you do a capital distribution but you would first have to go through the process of a Members Voluntary Liquidation which will cost between £1,500 to £2,000. Again, the first £12,300 will be covered by your annual capital gains tax allowance. The remainder would be chargeable at 10% (if the distribution qualifies under the Business Asset Disposal Relief (formerly Entrepreneur's Relief)).
You can read more about the MVL route here.