Getting a bonus/dividend through work, paid into my own Ltd. company?

Birchwood

Hi all. Got a question I hope someone here might be able to help with.

I earn £50k. As soon as I earn over that, we as a family will start to loose out on the child tax credits we receive.

This year, as a shareholder in the company I work for, I am receiving a bonus/dividend.

Last year, under advice, I set up my own Ltd. company.

I have been advised that the most tax efficient way of receiving that bonus is to invoice the company which I'm an employee and shareholder of the amount of the bonus (for the sake or argument lets say it's £2000) through my own Ltd. company.

Thereby keeping my PAYE income for the year at £50k and not effecting the child tax credit calculations, while still receiving £2000 into my own Ltd. company as a bonus.

a) Does this make sense?
b) Is it legal? I don't want to do anything illegal or unethical

Working hard to gain £2000 as a bonus, but then loosing that amount in child tax credits would seem illogical, so I'm trying to work around it entirely legally and ethically if possible.

Mainly I just want to make sure I'm not been given bad advice and doing the wrong thing receiving the dividend into my own Ltd. company.

Also, by doing that, am I still not effectively generating a personal income of over £50k anyway? Is the money that's paid to my Ltd. company not viewed by HMRC as mine, for example, until I transfer/pay that money to my personal bank account?

I'm going to find and speak to a financial adviser so I can get my head around all this, but would appreciate any additional thoughts.

Thanks

xHannahx

Child tax credit upper earning limit is according to government website £32200.
Child benefit starts reducing at £50k. The reduction is so slight unless the bonus is tiny you'd be better off taking the bonus and reducing the child benefit,

Pennywise

You dont lose all tax credit if you just go over the £50k - its tapered away so you tax credit clawback will be minimal.

Anyway, your plan wont work as your bonus is derived from your employment so it is taxed under PAYE.

Presumably you have a ltd co for other reasons, i.e. a different business? Otherwise you've wasted time, effort and money in setting up a pointless ltd co.

Rappa

Birchwood wrote: »

...Last year, under advice, I set up my own Ltd. company.

I have been advised that the most tax efficient way of receiving that bonus is to invoice the company which I'm an employee and shareholder of the amount of the bonus (for the sake or argument lets say it's £2000) through my own Ltd. company.

...

I'm going to find and speak to a financial adviser so I can get my head around all this, but would appreciate any additional thoughts.

Thanks

So who actually provided you with this earlier advice?

Someone you met down the pub, perchance?

:cool:

Froggitt

Im not sure whether there are one or two companies here.


Company 2 can invoice company 1 for £2000, as a discretionary payment (don't use the word bonus as it could imply you work for that company, rather than your own company).


If you don't take it as income or as dividend, it stays within the company, and your income stays at £50k. I will eventually get taxed at 20% corporation tax, but that's better than at 40% income tax, plus NI etc.

yasmup

Froggitt wrote: »

Company 2 can invoice company 1 for £2000, as a discretionary payment

Well, yes, any company can invoice another.

But if company 1 has any form of financial management system in place at all, then they will be aware of no contract existing with company 2 and so will probably file the invoice in file 13.

Dividends will be paid out to the shareholder named. If the OP wishes their limited company to receive the dividend, they need to sell the shares to the limited company (before the ex. div. date, if any) and inform the issuing company accordingly so that the share register is updated accordingly.

Froggitt

But it sounds like the OP has a choice of how he would like the money paid from company 1, and they will be expecting some form of request for payment.

Pennywise

Froggitt wrote: »

Im not sure whether there are one or two companies here.


Company 2 can invoice company 1 for £2000, as a discretionary payment (don't use the word bonus as it could imply you work for that company, rather than your own company).


If you don't take it as income or as dividend, it stays within the company, and your income stays at £50k. I will eventually get taxed at 20% corporation tax, but that's better than at 40% income tax, plus NI etc.

But there is anti-avoidance tax legislation in place which means that if the money is derived from an employment, then it should be taxed and NI'd as employment income, i.e. through the paying firms (employer's) payroll. It's tax evasion (i.e. illegal) to artificially reclassify income derived from employment as something else just to avoid tax/nic - as is clearly the case here!

paddyrg

Does the limited company own the shares? If not, it won't receive a dividend. The next step would be how you would be able to spend the money - because if it's the company's money, it's not your money. The company would have to pay you, and we're back at square one. If the payment was as a dividend after corporation tax, square one again. In addition to that is the accounting overhead of running a limited company - that may be a grand a year in itself.

I think whoever advised you probably did so poorly.

In simple terms, 'your' company is a person, with its own rights and responsibilities, taxes to pay, and can hold and own money of its own. You are a director of that company, you can receive a wage or dividend from it for helping it to manage its affairs, but you can also get into trouble if you make poor decisions for the company and make it make illegal payments.

In my opinion, take the dividend with gratitude that you're in the position to start tapering away some benefits.

Froggitt

Pennywise wrote: »

But there is anti-avoidance tax legislation in place which means that if the money is derived from an employment, then it should be taxed and NI'd as employment income, i.e. through the paying firms (employer's) payroll. It's tax evasion (i.e. illegal) to artificially reclassify income derived from employment as something else just to avoid tax/nic - as is clearly the case here!

I'm making the assumption that whoever he got advice from, he got advice about IR35 which I am assuming you are referring to, and that he has a contract with his company that is outside of IR35.

robatwork

This sounds so close to tax evasion as to be not worth a potential visit from Mr Plod. You're not a contractor from what you are saying?

Was your advisor an accountant/IFA or as said, man in pub?