Invest Bounce Back Loan For A Year?

kinger101

More drip feed.
Hard to do any calculations with the limited facts you've presented, but if you are truly paying yourself solely in dividends out of the company on £20,000, then it's not my accountancy skills you need to worry about.  I suspect the reality is your accountant knows what they are doing, and is using a combination of salary and dividends to give you the lowest possible tax liability.

John_

Twointhebush said:

Small businesses are going to be eligible for a Bounce Back Loan:
"Small businesses struggling due to the Coronavirus can now apply for a new 100% state-backed loan worth up to £50,000, with no interest charged or repayments needed in the first 12 months."
What if a sole trader took out the maximum loan and invested it for a year in a high interest account or something like Premium Bonds, and paid it back before the interest kicks in? Would there be any drawbacks?

It’s hard to imagine how unpleasant a person must be to take advantage of this emergency scheme to make a few pounds. Have a word with yourself, eh?

John_

Twointhebush said:

This is an Investment Forum, may I suggest that some of you relocate to the Moralising Corbynite forum....

Corbynite? Disdain for people unnecessarily taking money from the state is not corbynite.

blue_max_3

kinger101 said:

More drip feed.
Hard to do any calculations with the limited facts you've presented, but if you are truly paying yourself solely in dividends out of the company on £20,000, then it's not my accountancy skills you need to worry about.  I suspect the reality is your accountant knows what they are doing, and is using a combination of salary and dividends to give you the lowest possible tax liability.

Well, I'm refuting your impression that I am a tax dodger! Why suggest I am if you don't have enough information to go on?
We (and it's far from just me), pay ourselves a small basic salary and only draw a dividend at the end of the year, when we can see how much we have made during the year (as it's not a fixed sum). You can get into serious trouble for spending money you don't earn, so this is the only sensible to way to budget. And you may have no choice if a client demands it. As mentioned, it didn't make a material difference on a modest salary.
You could say anyone with a personal pension is dodging tax. Or an ISA. You pay your tax according to the requirements of the government. We'll ALL be paying more tax to pay for this, so if we're a special case, leave us out of it.

kinger101

blue_max_3 said:

kinger101 said:

More drip feed.
Hard to do any calculations with the limited facts you've presented, but if you are truly paying yourself solely in dividends out of the company on £20,000, then it's not my accountancy skills you need to worry about.  I suspect the reality is your accountant knows what they are doing, and is using a combination of salary and dividends to give you the lowest possible tax liability.

Well, I'm refuting your impression that I am a tax dodger! Why suggest I am if you don't have enough information to go on?
We (and it's far from just me), pay ourselves a small basic salary and only draw a dividend at the end of the year, when we can see how much we have made during the year (as it's not a fixed sum). You can get into serious trouble for spending money you don't earn, so this is the only sensible to way to budget. And you may have no choice if a client demands it. As mentioned, it didn't make a material difference on a modest salary.
You could say anyone with a personal pension is dodging tax. Or an ISA. You pay your tax according to the requirements of the government. We'll ALL be paying more tax to pay for this, so if we're a special case, leave us out of it.

You're doing a bad job at refuting that impression.  Nobody is forced to organize your business in a such a way that maximizes ones tax, but taking 50/50-ish split of salary and dividends reduces the overall tax burden by around a third - hardly insignificant.  That's the reason your accountant suggests paying as dividend rather than salary.  He could equally suggest you draw that year end as a bonus but his spreadsheets tells him it will cost you more in tax that way.  I'm not making any moral judgement here. Most people would do the same thing in your shoes (myself included), but one can hardly judge the government for not including PSC dividends in the furlough scheme when people using this have made a choice to pay less tax via a tax avoidance method they obviously disapprove of.

People saving in pensions and ISA are also trying to reduce their tax.  These schemes are specifically legislated for, so cannot really be regarded as avoidance. 

blue_max_3

kinger101 said:

You're doing a bad job at refuting that impression.  Nobody is forced to organize your business in a such a way that maximizes ones tax, but taking 50/50-ish split of salary and dividends reduces the overall tax burden by around a third - hardly insignificant. 

How have you worked that out? Compared to an employee or self-employed? You can't just throw out statements like that without qualifying them. Maybe this is the source of your misunderstanding.

Thrugelmir

blue_max_3 said:

kinger101 said:

You're doing a bad job at refuting that impression.  Nobody is forced to organize your business in a such a way that maximizes ones tax, but taking 50/50-ish split of salary and dividends reduces the overall tax burden by around a third - hardly insignificant. 

How have you worked that out? Compared to an employee or self-employed? You can't just throw out statements like that without qualifying them. Maybe this is the source of your misunderstanding.

If you are not making any savings. Ask your accountant what you are paying them to do every year end. 

kinger101

blue_max_3 said:

kinger101 said:

You're doing a bad job at refuting that impression.  Nobody is forced to organize your business in a such a way that maximizes ones tax, but taking 50/50-ish split of salary and dividends reduces the overall tax burden by around a third - hardly insignificant. 

How have you worked that out? Compared to an employee or self-employed? You can't just throw out statements like that without qualifying them. Maybe this is the source of your misunderstanding.

You claimed you were not eligible for self-employment because the company you contract to requires a PSC.  I've assumed salary is drawn equally over 12 months, but in reality, an accountant would work out the options available to you based on personal circumstances.  They'd also have to factor in NMW but without knowing how many hours you work, it's impossible.

Scenario 1 = 100 % salary

Gross salary adjusted for employers NI = £18,639.39

Taxes
Employers NI = £1360.11
Employees NI = £1096.31
Income Tax = £1227.98

Giving a total tax of £3684.40 (18.42 %)


Scenario 2, 50/50 split

Gross salary adjusted for employers NI = £9,862.54
Dividend after CT = £8100

Taxes
Employers NI =  £147.46
Employees NI = £41.82
Income tax on salary = £0
Income tax on dividend = £270
Corporation tax  = £1,900

Giving a total tax of £2,359.28 = 11.8%

blue_max_3

Thrugelmir said:

If you are not making any savings. Ask your accountant what you are paying them to do every year end. 

That was compared to being a sole-trader. I'm not an employee. 

blue_max_3

kinger101 said:

I had to be a limited company for a contract some years ago. I don't do any work for that company any more, though who knows what may happen in the future.
So, I'm self employed. That is the only direct comparison.