Retaining more than £25k dividends in business account

[jpowell79]

Hi guys, I was wondering if I could get some advice. I've been contracting for a good few years now, and my business bank account is now north of £25k.

I don't intend on contracting forever, and the plan was to close the limited company down in the next year or two. For the past two years I've been paying myself minimum dividends with the understanding that I could close the company and use an MVL to withdraw the remaining dividends from my business bank account in the most efficient manner, however I'm now being lead to believe that there is no benefit whatsover in holding more than £25k in the account, as if you close down the company with dividends in excess of £25k, then the entire amount is subject to the normal dividend tax rate?

Can anyone confirm/deny this?

If so, I may as well just start taking some out now and get it back under the £25k limit.

thanks

[Maslins]

What you've heard would be correct if you were to strike off your company. You may want to do a bit of research into MVLs (Members Voluntary Liquidations). If your company comes to the end of its life and has >£25k net assets in it, then an MVL is the main way to get CGT treatment on those funds.

Various other options like big pension contributions, or if your balance will be just over £25k, perhaps just "finding a way" to get the net assets below £25k to avoid the costs of an MVL which are much higher than a strike off.

[northernladuk]

How do you only have 25k in it after a good few years of paying minimum dividends?

[LondonPM1]

How do you only have 25k in it after a good few years of paying minimum dividends?

This is what suprises me as well - Dont we have dimprawn claiming he sits at home and burns fifties in the fireplace to keep warm at night?

25K savings from two years is not very good is it

[TonyF]

How do you only have 25k in it after a good few years of paying minimum dividends?

Isn't minimum dividends £0? So only saving £25k after years of paying nothing - ouch

[jpowell79]

This is what suprises me as well - Dont we have dimprawn claiming he sits at home and burns fifties in the fireplace to keep warm at night?

25K savings from two years is not very good is it

I guess my hourly rate isn’t anywhere near as good as a lot of contractors on here

I used to to withdraw max dividends and then was advised to switch to minimum dividends 2 years ago, so I now withdraw the minimum £3160.50 a month into my personal account, hence there’s not a huge amount left over in my business account.

The business account is around the £35k mark now although some of that will be for VAT and other things that need to be paid.

[cojak]

Let’s not wave money about and query people on their amounts in the bank guys - contracting in the future is NOT going to encourage the rates that us old lags have been used to.

[WordIsBond]

OP, if you'd said "£3K / month" or "up to the higher rate threshold" instead of "minimum" the clowns probably wouldn't have been sounding off.

Maslins answered your question anyway. It's probably not going to hurt you later to be tax-efficient now. You might, though, consider now increasing your pension contributions, which will save on corporation tax as well.

[eazy]

CGT v Dividend Tax

however I'm now being lead to believe that there is no benefit whatsover in holding more than £25k in the account, as if you close down the company with dividends in excess of £25k, then the entire amount is subject to the normal dividend tax rate?

Closing the company down company via the MVL route, retained funds are subject to CGT, not dividend tax. If you are going to retire/ go staff, then you could use entrepreneur’s allowance to reduce CGT tax to 10%. Dividend tax is only due if you take the dividends instead of liquidation to withdraw funds. Need to consider company closure costs (Typically £1500)+CGT versus Dividend tax.

[craigy1874]

minimum and maximum dividends are horrible, horrible terms.

As someone says above, for a start, minimum is zero. I'd love to know you calculate maximum.

Do your sums, be tax efficient and don't worry about the £25k limit at this stage is the best advice anyone can give you.