Your approach to Drawings over 50k?

[BrassicaBabe]

I'm in two minds as to whether to post. MN don't like this kind of thing! But I'm not sure where else to ask.

I try to keep drawings under 50k as the tax after that hurts. But because some of the money that makes up that 50k doesn't come to me directly (it's in a partnership business and we're saving towards expansion. But the money is counted towards SA earnings) I could do with withdrawing more than 50k.

Not even 100% sure what my question is. What do others do in this situation? I only need about 57k overall. But that extra 7k is taxed at 32% isn't it. Do you withdraw extra to cover that tax? (Disappearing then down a rabbit hole of tax)

There is money in the main ltd company (outside of the mentioned partnership) available. I'm just not sure what the best strategy is.

I guess if I wanted to withdraw 100k it wouldn't be an issue (as such!) because I'd just have to suck up the tax topic. But when I need just over the allowance it makes me scratch my head.

Thanks!

I don't understand how the £50k counts towards your self assessment but doesn't come to you directly.

It's quite simple really - if you withdraw dividends that take them into a higher tax bracket, you will have to declare them on your self assessment and pay the additional tax then - unless there is another way you can offset the tax (e.g. tax relief on pension contributions)

What are your 'drawings' and where are they coming from? Are they a share of partnership profits? Salary/dividend from the company?

The source and your personal situation will dictate the tax rate and who pays what.

In reality your best bet is to speak to an accountant/tax adviser who knows the situation (as it is not explained clearly in your OP). With the kind of structure I think you have I would expect there to be a professional adviser involved too who will be able to give you advice.

Agreed. You need a tax accountant.

Thanks guys. I didn't explain myself very well at all. Rest assured I'm paying all the tax and declaring all earnings. Totally above board!

Good
I thought partners were taxed on profits not drawings

@user1487194234 they are. Taxed on your share of the partnership profits for the relevant period. Doesn't really matter how you take them/if it's in one lump/monthly etc.

Good Thanks very much for confirming

@BrassicaBabe do you mean drawings or dividends? As you mention a partnership I would expect you to be receiving a monthly draw but you are taxed on your share of the partnership profits, however you mentioned dividends and 32% which is a dividend rate?

Re reading your OP are you saying that you take a drawing from the partnership but you also take dividends from the Ltd company so you could increase your dividends instead? Who prepares the accounts for the partnership and ltd company? Are you able to get tax advise from them?

Partnership or limited company OP?

It sounds like you’re saying you’re taking divs from a limited company (which yes you will be taxed on - plus of course the company has already paid corporation tax) and then you’re investing the net amount after tax into a separate partnership?

Oh heavens I'm making it worse with the dividends/drawings thing.

I have a limited company and take a wage and dividends (right d word? ). Then I am part of a partnership so I'm taxed on my share of the profits. These profits remain in the partnership bank account because we are saving for something. I am still taxed on those profits. I could spend them if we agreed but we don't want to.

All in all on paper (and formally) my income across the board is 50k. And I believe I need to keep it at/below that. But in practical terms because we don't draw on the partnership profits it's less than that hitting my personal accounts. But the family need a tad more. I could take that from the ltd company if I wanted.

I guess the answer is something like "suck it up. Take more of you need it. Take a little extra to account for the increase in personal tax and be done" ?

The answer is get a tax adviser.

But if the limited company and the partnership are completely separate then the only issues appear to be

1. Do I want to pay higher rate dividend tax? - if not then don't take more but remember you only pay the higher rate on the extra amount taken. That's just the tax system and it is a bit "suck it up"

1. Do I want to be leaving all the partnership profits in the partnership?

I think I know what you mean with your question. I always try to stay below £100k because of the loss of personal allowance (and the fact that we don't need me to withdraw any more). But obviously that means end up with less than 100k because of tax (which is fine). If I actually needed 100k net to live on then yes I would have to take a higher dividend and pay more tax to give me a net amount of 100k.

Increase your drawings and your pension contribution.

If you have paid tax on income but want to leave it in the business or company for a future project , surely you draw down the profit and lend it back to the business. (When you eventually pay yourself back, it will be tax free as you will just be repaying the loan to yourself. )

I am assuming the partnership and the limited company are two separate entities and are unconnected businesses?

Yes, ltd company and partnership are unconnected.

Thanks All. That was helpful. Hadn't thought about withdrawing and lending back either.

@HasaDigaEebowai yes. That's it. The same topic as your 100k example. Maybe I just need to lift the bar to 100k and stop worrying

@BrassicaBabe
You would therefore increase the directors loans on the balance sheet, and any money you repay will be tax free as the company is merely repaying money you lent it.

Look at the company as a separate entity to yourself and it will help bring clarity,

I thought partners were taxed on their share of partnership profits regardless of how much was withdrawn?

But then the 32% rate is dividends - so, are we talking about a limited company?