What is the most tax efficient way to extract income from MyCo when switched to perm? What is the most tax efficient way to extract income from MyCo when switched to perm?
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    Default What is the most tax efficient way to extract income from MyCo when switched to perm?

    Let's say there is a £100k profit after expenses in a limited company and it needs to be extracted the most tax efficient way. The personal income tax allowance is used by permanent employment.
    With Members Voluntary Liquidation it is still necessary to pay Corporate Tax which will leave £80k and then £72 after Entrepreneurs Relief. So 'take home' appears to be 72%, almost 30% tax!
    How some contractors take home 80% or more?

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    You need to take the Corporation tax out of the equation.

    You pay Corp Tax on this years income as you would at anytime. Anything left over is then considered for MVL.
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    Quote Originally Posted by Relaxed View Post
    Let's say there is a £100k profit after expenses in a limited company and it needs to be extracted the most tax efficient way. The personal income tax allowance is used by permanent employment.
    With Members Voluntary Liquidation it is still necessary to pay Corporate Tax which will leave £80k and then £72 after Entrepreneurs Relief. So 'take home' appears to be 72%, almost 30% tax!
    How some contractors take home 80% or more?
    It depends on how long the 100k was generated over. If it's from a single year then yes, you will have to pay Corporation Tax on it. If it was acrued over several years then CT will have already been paid (or should have been!) so will not impact the funds avaialable to draw under ER via the MVL.

    Contractors taking home 80% plus are either using some form of tax mitigation scheme, which is extreemly risky given the current government attitude to tax avoidance, or they are putting a significant proportion of the progits before tax intoa pension scheme.

    Actually getting more than 80% of your day rate in your hand at the end wont happen under normal circumstances.
    "Being nice costs nothing and sometimes gets you extra bacon" - Pondlife.

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    Quote Originally Posted by DaveB View Post
    It depends on how long the 100k was generated over. If it's from a single year then yes, you will have to pay Corporation Tax on it. If it was acrued over several years then CT will have already been paid (or should have been!) so will not impact the funds avaialable to draw under ER via the MVL.

    Contractors taking home 80% plus are either using some form of tax mitigation scheme, which is extreemly risky given the current government attitude to tax avoidance, or they are putting a significant proportion of the progits before tax intoa pension scheme.

    Actually getting more than 80% of your day rate in your hand at the end wont happen under normal circumstances.
    So what is realistic take home percentage then?

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    Quote Originally Posted by Relaxed View Post
    So what is realistic take home percentage then?
    For a Ltd Co. contractor without huge expenses your generally talking between 70-75% depending on circumstances. Bear in mind that if you are on a good rate and take everything you can out of the company then you may well end up in the 40% tax bracket and pay more tax anyway.

    You can boost this without hitting the 40% bracket if you split the income with a spouse or partner but that carries it own risks.

    You'd be better off talking to an actual accountant for some real advice on your situation as it may also affect the tax you pay on any permanent earnings in the same year.
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    Quote Originally Posted by Relaxed View Post
    So what is realistic take home percentage then?
    Asking this question is like asking how long a piece of string is. You can literally have anything between 80% to 50%, depending on your personal tax planning, what figures you consider for your "take home %" (is you FRS surplus considered part of you % for ex.), what expenses you have, and so on. Corporation tax is 20% of your company's operating profit after expenses* (edited). You do not pay effective tax (in this current tax year) on dividends in the lower rate tax bracket, your salary is considered an expense to the company, however you get the funds in your pocket; you get the point, any "automatic" calculator that gives you take home % does not take a considerable amount of information when giving you the percentage take home. Only your accountant could give you your exact take home percentage, and even then you would need to narrow it down to him/her as to what it is you are exactly interested in, in terms of "percent" (if your annual company & personal income is £10,600, you could get 97.2% of this in your pocket).

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    Quote Originally Posted by AntonioDJCA View Post
    Asking this question is like asking how long a piece of string is. You can literally have anything between 80% to 50%, depending on your personal tax planning, what figures you consider for your "take home %" (is you FRS surplus considered part of you % for ex.), what expenses you have, and so on. Corporation tax is 20% of your company's operating profit after expenses* (edited). You do not pay effective tax (in this current tax year) on dividends in the lower rate tax bracket, your salary is considered an expense to the company, however you get the funds in your pocket; you get the point, any "automatic" calculator that gives you take home % does not take a considerable amount of information when giving you the percentage take home. Only your accountant could give you your exact take home percentage, and even then you would need to narrow it down to him/her as to what it is you are exactly interested in, in terms of "percent" (if your annual company & personal income is £10,600, you could get 97.2% of this in your pocket).
    And all this is going to change from April with the Divi tax
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    Starbucks will keep laughing if they read this thread...
    Last edited by Relaxed; 29th September 2015 at 15:33.

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    Starbucks and Amazon etc have complex tax set ups, are registered in other countries for tax reasons and in some cases have managed to get themselves registered as charities.

    They also don't employ a single director and run the company out of a back bedroom...
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