Budget affects on the Warchest?

[nomadd]

Wondered if anyone had any thoughts on how the budget changes will affect those who have built up a (very) sizable warchest?

I've had a pretty good run of contracting the last few years, and after maxing out the pension contributions (£40k/yr) and taking £42k combined salary and divdends, there has also been a good bit left over. TBH, I've paid the CT on profits at the end of the year and just left the money in the account "for long rainy day(s) on bench" Those long, long enforced periods on the bench never materialised (although I have taken some long breaks by choice.)

Anyway...

Now wondering if it's best to take the hit and extract all this warchest before next April? Obviously I'll let the dust settle on the budget and speak to my accountant over the coming months (no rush), but just wondering what other peoples thoughts are at this early stage about what to do with the warchest alread built?

I'm also planning to retire in the next 3 years. Wonder if it's just simpler to carry on until next April then shut the comapny down - in effect, retire early. Not sure if "entrepreneurs relief" would bring any benefits here? If so, might need to use them quick before they get pulled too!

Any opions much appreciated.

Cheers.

[PerfectStorm]

I've pulled all mine out anyway. Seems strange not to when there's plenty of bank interest to be had. It's still warchest as long as you're not spending it.

[Maslins]

Based on yesterday's budget, looks to have been no changes to ability to get cash out tax efficiently upon closure via an MVL. As we'll be having 3 budgets this year, it's by no means certain you'll still be able to do this in April 2016...but if you're planning on working 3 more years doing it now might be premature.

Pension contributions remain largely unchanged unless you're well above £100k earnings, so you can still get tax relief for putting a decent wodge in there.

[BolshieBastard]

My warchest is kept in personal accounts and not the company. Given the introduction of the divvie tax, Id withdraw as much as I could before April 2016.

[Crossroads]

In your position with potentially 3 years to go I would be looking at various options... ranging from keeping going for 3 years and hoping an MVL is still as advantageous as it is now (I reckon it will be gone by then, hut hopefully not) to liquidating now and going permie to extracting all as dividends now to planning to keep it all in the company and drip feed it out in retirement. I'd crunch the numbers on all of those based on current/next years legislation based on your circumstances and then look at the risks to the future options versus securing the cash now and how various scenarios might bring that retirement forward, or push it out further.

[Crossroads]

FWIW I MVL'd last year and noe have a smallish warchest in a new venture... my current thoughts are to take as much as I can in April OR to leave it in and drip feed it out. Taking a large dividend also brings the additional tax rate into play... another consideration if MVL isn't an option.

[WordIsBond]

If you are retiring in three years, you could just leave the money in until you retire. Depending on your other investment income, you could then take £5K a year in dividends tax free and another £40K or so at 7.5% (or whatever the divi rate will be by then). You could defer taking your pension until your company is out of cash.

[Gaz_M]

My warchest is kept in personal accounts and not the company. Given the introduction of the divvie tax, Id withdraw as much as I could before April 2016.

Can I ask what some will consider a dumb question?

If I withdraw, say £20k, out of my company before April 2016 as divs I know I will be hit at the higher tax rate to get hold of it.
That's fair enough & I know I'll get a tax bill of around £5k to pay by January 2017. However, don't I then have to pay a further £5k by July 2017? Is there a way around this?

[northernladuk]

You asked your accountant??

[Gaz_M]

You asked your accountant??

No, because as I said, I thought it was quite a dumb question to which there might be a quick answer on a contractor's forum.