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Funds extraction from Owner managed LTD company

Extraction of funds from ltd co

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Good afternoon ALL

The client currently offers his engineering consultancy work through his LTD company.

He is currently receiving about 11k pension per tax year.

So far this tax year, he has paid himself £800 worth of salary through payroll. April £400, May £400. No salary was paid in June and July as no work. Client's company has now been offered a new 6 months contract worth about £6.5k per month. Client will want to take home £2.5K month for the 6 months starting from August. This figure is after taking care of all expenses and taxes. Client is married and wife BR tax payer.

Question: Would it be appropriate to extract all of the £2.5k per month as dividend and no salary for the rest of the tax year? e.g. make the wife a shareholder with voting right and pay her £5k div @ 0%. That would leave £10k left. Then pay himself div of £5k @ 0% and remaining £5k at 7.5% =£375 tax to pay. 

Will the above idea/strategy be compliant?

Many thanks for your response in advance.

AJ

Replies (11)

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RLI
By lionofludesch
01st Aug 2016 14:14

What are the shareholdings now and what are they going to be ?

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Replying to lionofludesch:
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By AJ05
01st Aug 2016 16:44

Thanks for your response.

The shareholdings now is 100% to the single Director (husband) and look to do split of maybe 90:10 shareholdings? 10% to the wife.

Hope this helps...

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Portia profile image
By Portia Nina Levin
01st Aug 2016 16:48

£8,060.

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Replying to Portia Nina Levin:
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By Hugh Simpson
01st Aug 2016 17:17

Portia Nina Levin wrote:

£8,060.


Sssshhhhhh!!!!!!
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Replying to Portia Nina Levin:
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By Hugh Simpson
01st Aug 2016 17:17

Portia Nina Levin wrote:

£8,060.


Sssshhhhhh!!!!!!
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Replying to Hugh Simpson:
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By AJ05
02nd Aug 2016 15:42

@ Portia Nina what do you actually mean when you say ''sssshhhhhh''?

I am intrigued by it.

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Replying to AJ05:
Portia profile image
By Portia Nina Levin
02nd Aug 2016 16:07

I did not say it. Hugh said it.

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Replying to Hugh Simpson:
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By AJ05
02nd Aug 2016 16:19

Oooops I beg ya pardon @Portia Nina .

@ Hugh Simpson-What do you actually mean what you say ''Ssssshhhhh!!!''?

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By brian-scholar
01st Aug 2016 17:25

Surely we need to know whether he has sufficient credits to get a full state pension.

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By The Highlander
02nd Aug 2016 15:52

As Portia mentions £8,060 is usually the most tax efficient wage to pay a director, assuming no other wages/trading income.

However since your client is already using up his personal allowance from his £11k pension he receives then the dividend option you are suggesting is the best route.

Remember if you're wanting to split the share holding 90:10 but issue similar div amounts to each director its worth issuing different classes of shares as opposed to going to down the dividend waiver route.

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By AJ05
02nd Aug 2016 15:43

Thanks all for your replies... Appreciated.

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