Company ceased trading but still paying salary and pension

Company ceased trading & salary/pension

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A client company - sole shareholder/director  - is about to cease trading.  He has significant funds in the bank account, over £100k.  He is intending to pay himself dividends over the next several years in order to reduce the bank balance gradually.

However, he is also intending to pay himself a salary (£671pm) and for the company to pay into his pension scheme each year.  Obviously there is no tax relief as its wont be trading but it does mean he can extract further funds tax free -  I can't see anything that will prohibit this - am I missing anything?

Replies (6)

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Stepurhan
By stepurhan
14th Sep 2016 15:34

The salary is only tax-free in that it is paid at below the personal allowance. It's still taxable income, and will use up the personal allowance that could otherwise be used against other income.

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Replying to stepurhan:
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By SJRUK
14th Sep 2016 16:33

There is no other income, yet. But its a good point to point out to the client should he come in receipt of anything else such as pension income, then it becomes taxable.

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By Duggimon
14th Sep 2016 17:09

Why bother when the company can't get tax relief? There's no reason to not shut down the payroll entirely and save some admin.

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By SJRUK
15th Sep 2016 14:36

Because its a way of extracting £8k from the company and not paying tax on it (depending on other issues of course).
The running of the payroll is not exactly time consuming.

This is a case of looking at all options and the client has specifically raised this point.

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Replying to SJRUK:
paddle steamer
By DJKL
15th Sep 2016 14:47

Why not just pay more dividends to use up the PA if his only income source?

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By Comptable
16th Sep 2016 15:24

Assuming no other income:
Director's fees £8060 pa
Pension contribution £3600 pa (more might be attacked by HMRC.
Dividends £5000 pa
Total £16660 pa tax free
Assume cash and P&L account the same at a bit over £100k that will take about 6 years.
OR
Appoint spouse/partner as director and transfer 50% of shares to him/her (maybe attacked but amounts are relatively small) but that would reduce the period to about 3 years
AND
When reserves get to £20k (or is it £25k) liquidate - but that will cost.

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