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How to get money oout of Ltd Company these days

(4 Posts)
GavelRavel Wed 17-May-17 19:30:48

Ive been self employed via my Ltd Co for a few years now and have built up quite a large reserve of company profit. My salary/dividends every year compared to earnings isnt reducing it. id quite like to take a lump sum out to do something useful with like pay off a chunk of morgage. Whats the best way to do that nowadays? I know HMRC ha e made it harder and got rid of entrepreneur relief?

Badbadbunny Thu 18-May-17 09:04:39

Limited companies are a "tax shelter" in that you pay less tax, but for only as long as the money stays in the company.

Paying money out of the company triggers personal taxes, as you realise.

If you weren't a company, you'd have paid 40% tax and loads of nic on it's profits etc (assuming more than £40-£45k p.a. profits). By trading through a company, the company has only paid 20% on those profits. When you draw them out, you personally pay more tax, i.e. so you end up back at the circa 40% level.

If you want to carry on trading through the company, but need more money out, then you'll just have to take the tax hit, which puts you back where you'd have been as a sole trader! If you want to close it down and either give up work or return to being an employee, you can close it down and draw out the reserves as capital gains tax with lower rate entreprenneurs relief tax rate, but doing that means you can't just phoenix and start another company again within 2 years.

I know it's hard to accept the tax hit, but you have to remind yourself that the low corporation tax rate was just a temporary tax shelter and you'll have saved a shedload of NIC anyway.

If you don't want to close it down, the best you can do is to plan your withdrawals sensibly over several years to level out your personal tax. I.e. drawing dividends of £50k per year is cheaper for tax than drawing out £150k in one year and nothing in the others.

GavelRavel Thu 18-May-17 16:32:56

Thanks Bunny, that's really helpful. So they didn't get rid of lower rate entreprenneurs relief then, I thought they had.

If I close the company down, is it just the Director (me) who can't start another co within 2 years - can my employees and shareholders?

It's not so much that i need more money out, and the company is trading just fine and I don't plan to return to being an employee, if I can help it, it's just that the money in the company account is builiding up into and I'm not sure that it's ok to just leave it like that or whether I should be doing something more clever with the money eg investing it? What do Starbucks and the like do with their profits?! (not that I am in that league of course ...)

I guess I could close it down and work through an umbrella company for 2 years and then start another one.

SandyDays Thu 18-May-17 16:41:02

You could use some of it for annual investment allowance (AIA) do you need to buy anything for the company? Machinery, land, equipment?
You can also draw some out as interest as well as dividends.
There are EIS schemes which come with tax relief I believe.
If you have an accountant they will be able to advise you of the most tax efficient way to extract your money, but tax is one of life's certainties

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