Warchests etc.

[psychocandy]

Think NLUK brought this up in another thread but I'm a little confused.

OK. Say this year I earn 70K.

Got the low salary, dividend split etc. But obviouslty I'd rather not go into the upper tax bracket and pay an extra 22.5% or whatever on part of my divident income.

So, I take it the plan is to pay enough dividends right up to the limit? Then keep the rest in the company.

Obviously, I'd still pay CT at 20% on it anyway but no more.

If next tax year is quiet, could I then dsitribute it to myself then to take advantage of next years allowance?

Only thing is, would this prevent me from claiming JSA if I was without contract? i.e. the fact that there was still money in the business account that I could distribute?

Although strictly speaking I am not working, just getting dividend income as a shareholder of a company.

[Martin at NixonWilliams]

If next tax year is quiet, could I then dsitribute it to myself then to take advantage of next years allowance?

Provided you have carried the profits forward and they are showing as distributable reserves in the company you are free to distribute these as you wish. If this happens to be in a future tax year where you have un used allowances then this should be fine, this is a general tax planning tip if you do not need the funds immediately.

You should however consider the implication of future tax rises as the current rates that apply to dividends may not apply in future years.

Hope this helps.

[northernladuk]

The money that is in the business belongs to the business. It isn't your money until you pay yourself dividends or a wage.

Keep that basic rule in mind and a lot of things will become clearer.

The problem is if you don't pay yourself the max allowed in a tax year before you hit the limit it will just sit in your business and stack up to a point that when you do want it you are going to pay top dollar for it. If you have a quiet year you can withdraw the money at the best rate which is the whole point of having a warchest. If you decide not to pay yourself one year the next year you will have a lot more to withdraw which will take you over the limit and you pay extra tax on it. Same when it comes to emptying your account when you finish. If you haven't utilised the allowances over the year you will end up paying extra tax.

Dividends is classed as income but I don't know how JSA work so can't comment on that.

[TykeMerc]

Think NLUK brought this up in another thread but I'm a little confused.

OK. Say this year I earn 70K.

Got the low salary, dividend split etc. But obviouslty I'd rather not go into the upper tax bracket and pay an extra 22.5% or whatever on part of my divident income.

So, I take it the plan is to pay enough dividends right up to the limit? Then keep the rest in the company.

Obviously, I'd still pay CT at 20% on it anyway but no more.

If next tax year is quiet, could I then dsitribute it to myself then to take advantage of next years allowance?

Only thing is, would this prevent me from claiming JSA if I was without contract? i.e. the fact that there was still money in the business account that I could distribute?

Although strictly speaking I am not working, just getting dividend income as a shareholder of a company.

That's fundamentally what I'm doing at the moment as I'm taking some time off. I'm paying my salary and the occasional dividend from retained profits from the last financial year.

[psychocandy]

The money that is in the business belongs to the business. It isn't your money until you pay yourself dividends or a wage.

Keep that basic rule in mind and a lot of things will become clearer.

The problem is if you don't pay yourself the max allowed in a tax year before you hit the limit it will just sit in your business and stack up to a point that when you do want it you are going to pay top dollar for it. If you have a quiet year you can withdraw the money at the best rate which is the whole point of having a warchest. If you decide not to pay yourself one year the next year you will have a lot more to withdraw which will take you over the limit and you pay extra tax on it. Same when it comes to emptying your account when you finish. If you haven't utilised the allowances over the year you will end up paying extra tax.

Dividends is classed as income but I don't know how JSA work so can't comment on that.

Yeh. I appreciate that at some point its gotta be paid to you somehow and like the earlier poster said the tax law may change in the interim.

But theres no reason not to keep a fair bit behind is there? For instance, keeping a years worth of money up to upper tax limit means if you dont work for a year you can distribute this to yourself and pay no extra tax on it (assuming its financial year we're talking about).

JSA would be an interesting one because the people in the jobcentres dont really understand it. On the one hand your not working, but then they're not usually too keen if you've got money in your business account.

For the first 6 months or so, JSA is not means tested, its contribution tested but I'm not sure also if savings over £16000 or whatever it is count against you.

Last time I did this was 12 years ago. But then I emptied the business account when I didnt have a contract and didnt have a huge amount of savings about £10K. They paid me that time but it did take some explaining.

Saying that though its only £65 a week anyway. But better than nothing and I'm a believer that if you pay your taxes you can should claim what your entitled to.

[northernladuk]

There was a thread on here awhile ago with some kind of calculator or table showing what you were due. Will have a dig about.

[SueEllen]

For JSA you need to have less than 16K in the business bank account.

While you and the company you are director off are separate legal entities, if the company has enough in it's coffers to pay your wages then it should pay it rather than relying on the state.

[Mr Fahrenheit]

For the first 6 months or so, JSA is not means tested, its contribution tested but I'm not sure also if savings over £16000 or whatever it is count against you.

The £16k savings limit determines if you are eligible for getting mortgage interest paid, council tax benefit, and one or two other things that I can't recall.

There's a website here
Check your benefit entitlement
with more details.

If all you're claiming is contribution-related JSA, they're not interested in how much money you have, just how many NI contributions you've made for the last two years.

Contribution-related JSA is about £65/week, plus one or two other little things like free eye tests and dental checkups. The Job Centre can also organise things like CV checks and interview skills training.

You're limited to something like 6 months of contribution-related JSA in two years.

All the above is to the best of my recollection.

HTH

[Mr Fahrenheit]

For JSA you need to have less than 16K in the business bank account.

For what I think is called *Income-related* JSA that may possibly be correct. Certainly £16k in your own acount would rule you out. For *contribution-related* JSA, money in the bank isn't relevant.

I asked at the Job Centre if I was entitled to anything and, much to my surprise, they said I could have contribution-related JSA. I explained all about my status as a contractor, and they said it was OK, my NI contribution record entitled me to contribution-related JSA.

While you and the company you are director off are separate legal entities, if the company has enough in it's coffers to pay your wages then it should pay it rather than relying on the state.

I take it that's a moral view, rather than a legal position?

If so, it's one I respect, and one which I held till recently. But my other half pointed out how much tax I've paid, and said I'm morally entitled to get a bit of a safety net in return.

I went to the Job Centre, explained everything, and accepted what they told me I was legally entitled to.

[psychocandy]

Yep. Contribution based JSA is what I had for 3 weeks before I started my contract. (Redundant from permieland).

I think its limited to 6 months like someone said and its about £65 a week.

As for contribution based, I mentioned my mrs works part-time (shes a nurse and takes home about £1000 month) and they said this was WAY too much to ever claim contrib based.

As for mortgage help etc, you cant get this for 13 weeks I think. Then I'm not sure on what basis this is decided but I know they'll only pay interest.