Best savings scheme for a business?

planteria

and we are kind of on-topic: the best savings scheme for a business is to get it out;)

Borrowedtune

planteria wrote: »

and we are kind of on-topic: the best savings scheme for a business is to get it out;)

I'm still a learner when it comes to running the business in the most tax efficient manner, but the issue for me is that I am in a cyclical sector and though times are good at the moment, in 3-4 years time there may be less favourable conditions, and I want to be ready for that.


So, my strategy has been to put aside enough for this year's tax bill due in June (27K) plus another 30K as a contingency. I plan to keep going until I've got about 60K in cash, not including savings towards 2015's tax bill (so, about 90K in total).


The changes to SIPP rules certainly make it more attractive to add to my SIPP, so I'm keen to do more over the next few years.


I could pay up to 22K of that 30K into my SIPP (I'm only using 18K of my annual allowance currently) but I'd rather build up cash equivalent to 6 months revenue, and only then think about paying the excess into the SIPP using previous years' unused allowances.


But, maybe I am being excessively cautious at this stage ?

ozzage

soulsaver wrote: »

Apologies for staying off topic, but:

My understanding is the max you can contribute to your pension & get tax relief on is your total 'earned income' (with a cap £50k? this tax year, but not relevant to my question):

So I follow the £10k salary = £10k to pension & claim relief.
But are you saying that 'dividend income' is also classed as 'earned income'?

No that's not right, but it doesn't matter.

It's simple: ignore your salary for employer contributions. You only need to worry about the £40K annual contributions limit.

You are going to make company contributions from your company bank account so you do NOT need to worry about anything else. What you pay yourself and what you take in dividends is all completely irrelevant to this discussion.

The only thing to be wary of is that you don't pay out so much that you end up with no profit, and then you can't take any dividends

Edit: just realised you're all different posters! Just to emphasise: No, dividends may not be included when calculating your salary to determine your maximum employee contribution.

ozzage

Borrowedtune wrote: »

I'm still a learner when it comes to running the business in the most tax efficient manner, but the issue for me is that I am in a cyclical sector and though times are good at the moment, in 3-4 years time there may be less favourable conditions, and I want to be ready for that.


So, my strategy has been to put aside enough for this year's tax bill due in June (27K) plus another 30K as a contingency. I plan to keep going until I've got about 60K in cash, not including savings towards 2015's tax bill (so, about 90K in total).


The changes to SIPP rules certainly make it more attractive to add to my SIPP, so I'm keen to do more over the next few years.


I could pay up to 22K of that 30K into my SIPP (I'm only using 18K of my annual allowance currently) but I'd rather build up cash equivalent to 6 months revenue, and only then think about paying the excess into the SIPP using previous years' unused allowances.


But, maybe I am being excessively cautious at this stage ?

This sounds like a very sensible strategy to me. You're already putting in £18K a year into your SIPP by the looks of it so I think you have a good balance. As you say, you can increase that later when you're feeling more comfortable with your business "buffer". Well done for thinking ahead and considering the bad times.

planteria

this has been a useful thread to me. i will be speaking to my accountant later this week.

planteria

beancurd wrote: »

Limit for employee contributed SIPP this year is £40k.

just so i'm clear, do you specifically mean SIPP, or does this apply to all pension schemes?

planteria

ozzage wrote: »

The only thing to be wary of is that you don't pay out so much that you end up with no profit, and then you can't take any dividends

a good point. i have taken employer pension contributions in 2 of the last 3 financial years, and have been taking them, and dividends out of 'retained profit'. i want to move more from Company to Pension this year, but i need to ensure that i don't wipe out the profit in the process:think: