Funds extraction owner managed from LTD Company

JawzJawz New MemberWest MidlandsPosts: 53Registered
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 month starting from August. This figure is after taking care of all expenses and taxes. Client is married and wife BR taxpayer.

My question is: would it be appropriate to extract all of the £2.5 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






Comments

  • JawzJawz New Member West MidlandsPosts: 53Registered
    Thanks for your response @mrme89

    He is in his 40's. Not even 100% sure if the wife works but, let's assume she does work, but she's a Basic rate tax payer.

    Well, there is enough room to take more salary of course, as his only income currently will be the £11800 (£800 salary + £11,000 pension)

    However, if he take more salary there will be 20% tax on the salary. Whilst if extracted as div, there will be £10k @ 0% (owner-company director 5K and wife (shareholder) 5k and remaining 5k at 7.5%.

    Hope this clarify things?



  • JawzJawz New Member West MidlandsPosts: 53Registered
    Many thanks, think will just have to go with £8060 salary option.
  • Gem7321Gem7321 Experienced Mentor DevonPosts: 1,438MAAT, AAT Licensed Accountant
    If he has a substantial directors loan you could also consider charging interest to the company and taking advantange of the Personal Savings Allowance.
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