My Ltd. company - maximising dividend payments

nekro

I have a limited company and I pay myself each month with a minimal salary (£640.50), dividends and allowable expenses.

My dividend payments have been capped as I have reached the maximum allowable income before I am charged at a higher tax rate (40%).

I don't want to leave my earnings in my business account because the interest rate is very low (0.5%), also the minimal salary and expenses are not enough to cover my monthly bills.

I am thinking about adding my mother as a shareholder of my company and paying her dividends each month. This will allow me to draw more money out of my company account each month whilst staying below the high tax rate income limit. My accountant seems cautious about proceeding because of something called Section 660.

I would be interested to here what payment strcutures other limited company owners use and if the option I'm considering above is worth pursuing or too risky in case I get investigated by HMRC.

le_loup

If your accountant say no, why would you rely in a random stranger hereabouts.

zygurat789

le_loup wrote: »

If your accountant say no, why would you rely in a random stranger hereabouts.

I think the OP has accepted what hos accountant has said and is asking for any other ideas.

He/she does not appear to be married and is spending c£40k. I would suggest learning a new skill which will come in useful when times are harder namely economising and saving via company pension.

anselld

zygurat789 wrote: »

I think the OP has accepted what hos accountant has said and is asking for any other ideas.

He/she does not appear to be married and is spending c£40k. I would suggest learning a new skill which will come in useful when times are harder namely economising and saving via company pension.

.... or paying some tax.

zygurat789

anselld wrote: »

.... or paying some tax.

But this board is.................

chrismac1

My answer on the question of other family members generally is to ask what sort of involvement the family member will have, to maximise the chances of defending an "income shifting" enquiry along the lines your accountant is concerned about.

Here is the ideal set of circumstances for family member M, note that in the majority of circumstances M will also be a director, some of these don't apply if M is purely a shareholder:

1. M has a visible role in the company to third parties such as suppliers and customers.
2. M has a role in the company, for example Secretary or Director.
3. M has an awareness of the company's business affairs.
4. M is signing off the corporation tax return.
5. M is signing off the balance sheet with Companies House.
6. M has shares with full voting rights.
7. M gets dividends paid into a personal bank account over which M has 100% legal control.

Note these elements largely follow from the landmark 2007 "Jones case" a.k.a Arctic Systems which you can Google at your leisure. It does not take long to build up substantial tax risks, the maximum "income shifting" risk faced by a client of mine is circa. £90k.

But the person with the £90k risk ticks at least 6 of the 7 tests above, so I am sleeping fine at nights with regard to any enquiry. All income shifting risk clients are fully covered by tax investigation insurance.

getmore4less

https://www.google.co.uk/#q=Section+660

provides enough links to explain what it is.

anselld

zygurat789 wrote: »

But this board is.................

.... indeed. It gets difficult to save tax when you aren't paying any!

zygurat789

anselld wrote: »

.... indeed. It gets difficult to save tax when you aren't paying any!

The OP is paying tax, through the Ltd and is doin g nothing wrong. He/she could reduce that tax bill further by making pension payments out of the company.

trailingspouse

You could hunt around for an account that pays more interest - companies are allowed to have savings accounts!

And you won't be paying 40% anyway -
http://www.hmrc.gov.uk/taxon/uk.htm

grey_gym_sock

money within the company doesn't have to stay on deposit. some brokers/platorms will accept corporate clients.