Using Dividends

[SouthRoute55]

I have managed to save a decent sum of money which I left in my company's bank account. Now I'd like to use the money to pay off my mortgage. However, a colleague told me to be careful with that as I will end up paying a much higher tax ( taken into account the monthly amounts I am taking out to live on which will also be partly salary but not through PAYE/partly dividends)

What is the safest way to withdraw all the money without having to pay the higher taxes? do I add a shareholder (one of the kids) to the company and divide dividends between us? Someone also suggested if I open another company I am able to transfer money from one to another r without incurring any extra tax penalties.

[MrRobin]

Income shifting (distributing profits to family members) is a dodgy area and I wouldn't touch with a barge pole, others on here might say it was perfectly fine to do tho...

What about shutting down the company and applying for Entrepreneur's relief? You would only pay 10% tax then (Assuming you have less than £1M in the company)

[Archangel]

I have managed to save a decent sum of money which I left in my company's bank account. Now I'd like to use the money to pay off my mortgage. However, a colleague told me to be careful with that as I will end up paying a much higher tax ( taken into account the monthly amounts I am taking out to live on which will also be partly salary but not through PAYE/partly dividends)

What is the safest way to withdraw all the money without having to pay the higher taxes? do I add a shareholder (one of the kids) to the company and divide dividends between us? Someone also suggested if I open another company I am able to transfer money from one to another r without incurring any extra tax penalties.

Adding one of the kids etc is tax evasion, you can get jail time for that.
You could add your wife as a shareholder and pay her say £35,000 taxed at basic rate, and yourself the same. (until this method is probably removed next budget (see "income shifting", or "the family business tax"))
If you open another company and transfer money to that one how would you then withdraw that money?
The safest way is to draw approx £38,000 pa until the money runs out.
Shutting down the company is an option, but if you start another then HMRC will take a dim view.

[Platypus]

but if you start another then HMRC will take a dim view.

Evidence?

[hgllgh]

What about shutting down the company and applying for Entrepreneur's relief? You would only pay 10% tax then (Assuming you have less than £1M in the company)

I can't find any info on the rules regarding shutting down a company, paying the 10% tax and then starting up again. Even the HMRC website does not give any guidance on this. I am considering doing this as I am planning on travelling for a few months after closing down, but when I get back I will probably start up again, so I have no idea if HMRC will come after me or not?

[Pickle2]

I can't find any info on the rules regarding shutting down a company, paying the 10% tax and then starting up again. Even the HMRC website does not give any guidance on this. I am considering doing this as I am planning on travelling for a few months after closing down, but when I get back I will probably start up again, so I have no idea if HMRC will come after me or not?

You will be fine, Im sure. If you are out of the country for several months after the shutdown, you can just tell the tax man you had a change of heart whilst sat on the beach, and that the contractors life IS for you afterall. I have done exactly this before, and I know several contractors who have done the same.

[Archangel]

Evidence?

Looks like I've got it wrong, sorry, I was sure I'd read that closing down a company and starting another effectively doing the same thing would invalidate the relief, but I've reread the guidance notes and can't find it.

[THEPUMA]

Looks like I've got it wrong, sorry, I was sure I'd read that closing down a company and starting another effectively doing the same thing would invalidate the relief, but I've reread the guidance notes and can't find it.

You were correct. The mechanism for having the proceeds treated as capital is applying using the concession, ESC C16. This concession is only available on the cessation of trade and HMRC have just added an additional statement when you apply for the concession, which from memory is confirmation to this effect.

A potential solution is the old use your company money to offset your personal mortgage trick. This is not for the faint-hearted. I've seen a technical opinion that it works (without generating a BIK or additional corporation tax charge) but luckily never had it challenged as it is a grey area. You have to make sure the paperwork is spot on though.

[Chugnut]

A potential solution is the old use your company money to offset your personal mortgage trick. This is not for the faint-hearted. I've seen a technical opinion that it works (without generating a BIK or additional corporation tax charge) but luckily never had it challenged as it is a grey area. You have to make sure the paperwork is spot on though.

In today's tax climate I can't see any attempt at elaborate tax planning being acceptable in HMRC's eyes.

It's only fair.

[spoons]

You were correct. The mechanism for having the proceeds treated as capital is applying using the concession, ESC C16. This concession is only available on the cessation of trade and HMRC have just added an additional statement when you apply for the concession, which from memory is confirmation to this effect.

A potential solution is the old use your company money to offset your personal mortgage trick. This is not for the faint-hearted. I've seen a technical opinion that it works (without generating a BIK or additional corporation tax charge) but luckily never had it challenged as it is a grey area. You have to make sure the paperwork is spot on though.

I am intrigued as to how this could work without flagging up as fraud??