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Help - stratospheric profits !

Have this Ltd. Co. client who's always done quite well with profits of around £100k in recent years, but just having completed the last accounts we have taxable profits of £690k.

We have dividends and salaries of £95k for the husband & wife directors / shareholders (who incidentally are aged around 40) to just have them on the cusp of 40% and at present their directors' loan a/c is £382k so plenty of scope to draw out at the moment but they're not desperate to do so  - they haven't quite got their heads round it yet and regard it as Monopoly money !  Of course some of the CT is at 28% / 26%, so they may think it's worth paying a further 12 or 14% tax just to be able to get more out of the companty via dividends.

But what ways, if any, are there of reducing tax and drawing out money ?  Other than directors' pensions, which they're reluctant to do but I think they ought to.

Any ideas would be welcomed as we're having a meeting in a couple of days to discuss matters.



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29th Feb 2012 20:35

Great news!

I think it's only accountants and certain taxpayers that ignore the positive side of healthy profits  and just think "OMG look at the tax!".

I had a similar case last year but they were "only" heading for £450K.They put reasonable sums into pensions and I just advised them to slow down. They were working every day of the week and, as there was no guarantee they'd hit the same income next year, all they did was delay some of their projects by a few weeks to take the income into next year, when they would be down to £150K ish.

Obviously you didn't see this coming and so it seems to me that forcing the tax saving ethos will just involve them spending money they wouldn't otherwise spend. So, unless they can get some free advice from Barclay's lawyers, if they were my client, I'd take along party poppers.


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29th Feb 2012 22:36

Stick the accountancy accrual up to £600k or so, that'll save them a lot of tax :)

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29th Feb 2012 22:42

On a more serious note, if they are expecting this to continue, and they want easy access to funds, consider transferring the trade to a LLP, with partners as H, W and NewCo Ltd (shareholders H & W).

Model profit share to company up to SCR, draw as dividend if wished, then take out rest as partnership profit - the further you get past the class IV threshold the better the average composite tax rate becomes.

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29th Feb 2012 23:05

Thanks, girlofwight - your first suggestion sounds by far the simplest and best, but will certainly draw up some figs. on the second suggestion !

The tax at present is £173k, which I'm sure will be the biggest cheque they'll have ever written but then they do have about £3/4m in the bank so should survive it.

Fortunately, Paul, they do accept that there's a large tax bill; when I collected the books I was told "we do seem to have had quite a good year" !  They are hard working but not ridiculouslsy so, always have weekends off etc., but are trying not to expand any further.

And actually, Paul, they are with Barclays - are their free lawyers any good at tax planning ?

Thanks again

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01st Mar 2012 16:54

I think

Eddystone wrote:

And actually, Paul, they are with Barclays - are their free lawyers any good at tax planning ?

I think that was a light hearted comment based on


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01st Mar 2012 19:17

Duh !  Right, missed that -

Duh !  Right, missed that - thanks !

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05th Mar 2012 14:15

I know its become a dirty word now


Have you considered talking to the client about EBT's? They do still work if done correctly and you would most likely need to move the year end so its done "in the period" rather than accrued afterwards.



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By blok
05th Mar 2012 14:25


moving the year end and paying money towards an EBT ! 

That is soooo last year.  Do people still do that?


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05th Mar 2012 14:40


blok wrote:

moving the year end and paying money towards an EBT ! 

That is soooo last year.  Do people still do that?



Yes they do!

Its very risky, of course, but it still works with the right paper trail.

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05th Mar 2012 14:52

Expensive Bloody Trouble

Pete.  You sound like a clever man.  Please can you tell me what this new Part 7A of ITEPA's all about?  I can't seem to get my head round it.

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05th Mar 2012 15:00


Depending on attitudes towards risk, there are a number of other options out there which are much less contentious than EBTs as well.

Some of the new "disguised remuneration proof" EBTs I've seen on the market leave something to be desired in relation to the commerciality of business transactions which I feel are needed these days. 



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05th Mar 2012 15:12

Commerciality of business transactions

I agree entirely.  Particularly after that recent Ramsay case.

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05th Mar 2012 15:34

Many thanks, everyone.  Have

Many thanks, everyone.  Have got a lead to follow up with some consultants, so we'll see if they can help. Agree I'd be a bit wary of EBTs !

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06th Mar 2012 09:13



You may already know this, but it might be worth mentioning the potential issue that the small companies rate does not apply to investment companies. If the company retains a significant portion of this cash, the risk is that it could taint the company as an investment company, so it will be paying full CT on the entire profits. If I remember right, whether a company is an investment company is a subjective judgement, but things that are taken into account are the percentage of total assets that are investments as opposed to assets being used for trading purposes. And the percentage of total income derived from investments. As I understand it, the mere fact that what has been invested is undistributed trading profits is not necessarily sufficient to prevent the company inadvertently becoming an investment company. I'm not sure this is a point often taken by HMRC, but you might like to bear it in mind.

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By cfield
08th Mar 2012 23:14

Bare trusts?

If your clients are aged around 40 the odds are that they have some kids knocking about, and this might be a good way of spreading the family wealth in time to pay university fees, deposit on a flat, etc.

Nothing to stop you setting up a bare trust for them and each spouse to transfer shares to it each year with market value up to the annual CGT exemption, assuming they have no other disposals.

Pay dividends on the kids shares each year up to the higher rate threshold (if their proportion of the shares allows) and let the cash accumulate within the trust.

Only trouble is the kids must become absolutely entitled when they are 18, which some consider too young, but if they "trust" them, it could be a useful savings vehicle for those expensive days that lie ahead.

Of course, it won't get the corporation tax bill down, but the rates are getting quite low now so this is becoming less of a problem. Also, it may prevent the company accumulating so much cash that it loses its trading status, and ultimately Business Property Relief on lifetime transfers.


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