Extracting funds from a limited company through rent

iinvestor

Can i do the following:

I own a company called SHOES LTD (a completely separate legal entity) which sells shoes. It rents the shop to sell shoes from me John smith. Shoes Ltd makes a profit of £30000. But instead of declaring it as profit it pays it to me as rent (after I John smith invoice shoes Ltd for £30000 rent and have a relevant leasing contract signed up). Hence no profit and no NI contributions and no dividends, no corporation tax. Zero profit! Me John smith receives £30000 rental income which I duly declare and pay 20% on 239965 after having a personal tax free allowance £6,035. This way i would save around 2%, as tax on rental income is 2% lower than corporation tax (2009 to 2010).

Would this work?


All names and companies used in this example are completely fictional.

Soubrette

From what I remember as a Company Secretary 10 years ago, HMRC do not look kindly on schemes that are set up purely to avoid tax - if the going rent in your area is indeed £30,000pa then you're ok.

If it is only £10,000pa then you've probably moved from tax avoidance to tax evasion.

Sou

iinvestor

tax evasion! the same income is declared just further along the chain

Soubrette

iinvestor wrote: »

tax evasion! the same income is declared

You are not taking it as earned income though, you are taking it as rent and thus avoiding paying NI on it.

As an aside, our accountant was very big on not taking dividends from the company less than quarterly. His argument was that if they were used for day to day expenditure they looked less like investment income and more like monthly salary.

I would always see an accountant regarding these schemes though.

Sou

mrsmyagi

Soubrette is right - the HMRC would take a very dim view if the market rent was not £30k. If it is, then go for it!