Speaking for my own position here as opposed to my practice clients- I’ve been only been drawing a modest amount out of my limited company each year (personal allowance + dividend allowance) as I haven’t particularly needed any more, and letting excess cash just build up in the company.
I will be applying for a mortgage with my wife, say in two years, and am concerned that although there is enough money being earned and retained in the company, our combined personal earnings on paper may not look high enough, due to my personal earnings only being the personal allowance + dividend allowance.
I’m considering adding my (director and shareholder) wife who is a basic rate taxpayer and also employed elsewhere onto the company payroll at £8,424 per year. I figure this will only cost 1% in tax (20% PAYE, less 19% corporation tax saved). This is the cheapest way of boosting our combined personal earnings, as anymore salary for me increases employee national insurance at 12% and anymore dividend income for either of us will incur tax at 7.5%.
My worries are:
1. I don’t know if mortgage providers take the profit building up in the company into consideration at all, or if it is based solely on what ends up on the SA302.
2. If I were to put through the additional payroll to boost up our combined SA302 earnings, I don’t know whether the corresponding £8,424 drop in company profit would spook the mortgage provider into thinking there was a problem with the company.
I appreciate it may be more of a question for a mortgage advisor, but I’m not convinced they’d understand the question as well as an accountant. If anyone has any experience of increasing personal income at the expense of company profit for mortgage purposes, I would be most grateful for any thoughts.