Drawing maximum "tax free" dividends and then re-investing them in the company

[vwdan]

Hopefully I won't get utterly trashed over this one! Because I've been saving and can live on the £10k salary payments I've not really drawn out a huge amount of money from the company.

As such, there's a fair chunk of profit (after tax) in the company bank and, with the 80/20 share split with the wife, I could declare the majority of it without incurring any further personal taxation for either of us.

Now, the thing is, I like my warchest to be in the company. Firstly it means I don't have to worry about the monthly expenses (Accountancy, salary, insurance etc) occurred whether I'm working or not, but it also means I've got cash there to front expenses. (For example, it's currently 5 weeks between my first weeks hotel invoice and my own invoice getting paid).

In addition to that, we're hopefully applying for a mortgage next financial year and I'm told they'll want to see what I drew this year.

So - my question - is there any mileage in drawing out my maximum tax free dividends and then putting the warchest bit straight back in the company as a directors loan?

The obvious pros to me are

• Can draw out up to that amount without it touching my tax-free allowance next financial year
• Shows a higher amount of personal earnings this financial year

Maybe I'm wrong, but I don't feel either of those are fraudulent because the money is there right now and I could legally just draw it all out and keep it personally.

I will ask my accountant, but right now I'm curious as to what you lot do.

[ASB]

What you probably will find most appropriate is:-

1. Hold relevant meeting etc.
2. Take salary of your tax free allowance (10k ish)
3. Subject to profit allowing vote a dividend which takes your income to utilise the BR band. Don't forget to gross up by 1.1 for the tax credit.
4. Post to directors loan account.
5. Job done.

You have now lent the company the net dividend, you are free to draw this at any time. There is no further tax to pay (subject to not having any other income in the year it is voted).

Of course don't forget Mrs dividend as well, which may skew the figures depending on her income for the year.

[TheCyclingProgrammer]

If you declare a legal dividend there is no reason why you cannot credit some of your share to the directors loan account and pay the rest to you and your wife in cash.

It makes sense to build up a warchest in the company but I'm not so sure it does if you aren't using your full basic rate. It would make much more sense to max out your basic rate whenever you can - if you don't use it, you lose it. That doesn't mean you have to spend it - you can put it in a savings account or whatever makes sense for you.

It sounds like what you're really talking about isn't a warchest, but working capital. If maxing out your basic rate band doesn't leave enough working capital then I don't see the problem with declaring the dividend and leaving some of yours in the company as a directors loan, then repaying it when the company has sufficient reserves.

It's not the same as reinvesting though. You're just loaning the company money. You aren't getting anything in return.

The most important thing is to ensure he dividends are legal and sufficient profit is available after allowing for your liabilities.

[yasockie]

What you probably will find most appropriate is:-

1. Hold relevant meeting etc.
2. Take salary of your tax free allowance (10k ish)
3. Subject to profit allowing vote a dividend which takes your income to utilise the BR band. Don't forget to gross up by 1.1 for the tax credit.
4. Post to directors loan account.
5. Job done.

You have now lent the company the net dividend, you are free to draw this at any time. There is no further tax to pay (subject to not having any other income in the year it is voted).

Of course don't forget Mrs dividend as well, which may skew the figures depending on her income for the year.

This is the better approach, or you can actually draw the dividends up to max basic rate and loan it back to the Ltd if actually needed.
What is much more likely is that you and your wife are going to need it, given the scenario of home buying (which is almost always better done personally rather than via Ltd)