Hypothetical question stuck at tax threshold

FlaatusGoat

This is a bit hypothetical as my fortunes could change, but I'm a limited company director and I receive a basic pay that's under the NI threshold. That plus my dividends puts me right at the end of the basic rate for this tax year.

Right now my company isn't making any money but there's enough in the coffers to keep me going for awhile. It would be quite nice to boost my income as I'm running on savings but taking an employed job seems to be very inefficient from a tax perspective as any more earnings I receive will put me into the higher rate tax bracket. Ideally, my company would get back up on its feet and start making money again so I can at least pay myself after April via dividends.

Besides being able to magic cash, it doesn't seem like I have many options. A, get some more money in my company. B, take up employment and pay mega taxes. Amirite?

Elliott.T123

Ultimately you are correct, there are only 3 legal ways to make money

1. Take a job where someone pays you
2. Self employed / Ltd Co director work
3. Investment returns

Ultimately the decision comes down to do you think the Ltd company fortunes are likely to change, if you think you can turn things around and bring in revenue focus on that. If you think that is unlikely then try to find employment and use the money in the Ltd co as a safety net / or fund a pension with it.

Dazed_and_C0nfused

FlaatusGoat said:

This is a bit hypothetical as my fortunes could change, but I'm a limited company director and I receive a basic pay that's under the NI threshold. That plus my dividends puts me right at the end of the basic rate for this tax year.

Right now my company isn't making any money but there's enough in the coffers to keep me going for awhile. It would be quite nice to boost my income as I'm running on savings but taking an employed job seems to be very inefficient from a tax perspective as any more earnings I receive will put me into the higher rate tax bracket. Ideally, my company would get back up on its feet and start making money again so I can at least pay myself after April via dividends.

Besides being able to magic cash, it doesn't seem like I have many options. A, get some more money in my company. B, take up employment and pay mega taxes. Amirite?

I must be missing something here as you appear to be struggling on £50k/year.

Taking a job would only put you into the higher rate tax bracket if you continued to take ~£40k in dividends.

Either your post isn't explaining things properly or you just need to cut down a bit in your spending.  Millions would love to have income of £50k/year!

DE_612183

Dazed_and_C0nfused said:

FlaatusGoat said:

This is a bit hypothetical as my fortunes could change, but I'm a limited company director and I receive a basic pay that's under the NI threshold. That plus my dividends puts me right at the end of the basic rate for this tax year.

Right now my company isn't making any money but there's enough in the coffers to keep me going for awhile. It would be quite nice to boost my income as I'm running on savings but taking an employed job seems to be very inefficient from a tax perspective as any more earnings I receive will put me into the higher rate tax bracket. Ideally, my company would get back up on its feet and start making money again so I can at least pay myself after April via dividends.

Besides being able to magic cash, it doesn't seem like I have many options. A, get some more money in my company. B, take up employment and pay mega taxes. Amirite?

I must be missing something here as you appear to be struggling on £50k/year.

Taking a job would only put you into the higher rate tax bracket if you continued to take ~£40k in dividends.

Either your post isn't explaining things properly or you just need to cut down a bit in your spending.  Millions would love to have income of £50k/year!

Perhaps he's taken £50k in dividends already and has 4 months to go?

Grumpy_chap

There is a middle ground between own Ltd Co Director and employed.
You could work via Umbrella Company as contractor and take salary through them at £50k tax threshold and pass everything else forward to pension as salary sacrifice (subject to pension contribution limits).
That will mean more tax (& NI) than own Ltd Co Director but potentially less than regular employed.

Dazed_and_C0nfused

DE_612183 said:

Dazed_and_C0nfused said:

FlaatusGoat said:

This is a bit hypothetical as my fortunes could change, but I'm a limited company director and I receive a basic pay that's under the NI threshold. That plus my dividends puts me right at the end of the basic rate for this tax year.

Right now my company isn't making any money but there's enough in the coffers to keep me going for awhile. It would be quite nice to boost my income as I'm running on savings but taking an employed job seems to be very inefficient from a tax perspective as any more earnings I receive will put me into the higher rate tax bracket. Ideally, my company would get back up on its feet and start making money again so I can at least pay myself after April via dividends.

Besides being able to magic cash, it doesn't seem like I have many options. A, get some more money in my company. B, take up employment and pay mega taxes. Amirite?

I must be missing something here as you appear to be struggling on £50k/year.

Taking a job would only put you into the higher rate tax bracket if you continued to take ~£40k in dividends.

Either your post isn't explaining things properly or you just need to cut down a bit in your spending.  Millions would love to have income of £50k/year!

Perhaps he's taken £50k in dividends already and has 4 months to go?

So an annualised income of £75k so far this tax year.  

Sure there must be savings to be had somewhere!

FlaatusGoat

Dazed_and_C0nfused said:

I must be missing something here as you appear to be struggling on £50k/year.


Either your post isn't explaining things properly or you just need to cut down a bit in your spending.  Millions would love to have income of £50k/year!

Why are these two paragraphs remotely relevant to my original post surely my financial circumstances are my own business. Or not? And what other people are earning is entirely irrelevant to my question also.

Marcon

There's nothing to stop you taking more salary from your company (always assuming your company does actually have cash at the bank - not clear from your post if that's the case?), even if that means your company makes an accounting loss. It will have NI implications, and of course reduce the amount available to distribute as dividends, but it may give you a greater degree of control in terms of not having to find outside employment?

Whichever route you go, you'll have to take a tax hit if your taxable income increases. 

If you're at least 55 there is always the possibility to take tax free cash from a pension scheme, but that's something of a slippery slope, however much you 'intend' to top up your pension once your company is profitable again.

If you have a 'flexible' SIPP, would taking cash from that and then repaying it in the same tax year be a possibility? You might need to arrange (very) short term borrowing to ensure it is paid back in time to keep the tax benefits, but it's a possibility worth investigating if your priority is keeping in the basic rate tax bracket.

Dazed_and_C0nfused

FlaatusGoat said:

Dazed_and_C0nfused said:

I must be missing something here as you appear to be struggling on £50k/year.


Either your post isn't explaining things properly or you just need to cut down a bit in your spending.  Millions would love to have income of £50k/year!

Why are these two paragraphs remotely relevant to my original post surely my financial circumstances are my own business. Or not? And what other people are earning is entirely irrelevant to my question also.

You've chosen to post on a public forum questioning the problem of paying 40% tax because you already have income of £50k+.

If you don't like the thought of paying 40% tax but want extra PAYE income then the solution is in your own hands, simply take a smaller dividend.

FlaatusGoat

Dazed_and_C0nfused said:

FlaatusGoat said:

Dazed_and_C0nfused said:

I must be missing something here as you appear to be struggling on £50k/year.


Either your post isn't explaining things properly or you just need to cut down a bit in your spending.  Millions would love to have income of £50k/year!

Why are these two paragraphs remotely relevant to my original post surely my financial circumstances are my own business. Or not? And what other people are earning is entirely irrelevant to my question also.

You've chosen to post on a public forum questioning the problem of paying 40% tax because you already have income of £50k+.

If you don't like the thought of paying 40% tax but want extra PAYE income then the solution is in your own hands, simply take a smaller dividend.

I still don't know why you had to question my personal financial circumstances and then point out what other people are earning relative to me?

Grumpy_chap

Dazed_and_C0nfused said:

FlaatusGoat said:

This is a bit hypothetical as my fortunes could change, but I'm a limited company director and I receive a basic pay that's under the NI threshold. That plus my dividends puts me right at the end of the basic rate for this tax year.

Right now my company isn't making any money but there's enough in the coffers to keep me going for awhile. It would be quite nice to boost my income as I'm running on savings but taking an employed job seems to be very inefficient from a tax perspective as any more earnings I receive will put me into the higher rate tax bracket. Ideally, my company would get back up on its feet and start making money again so I can at least pay myself after April via dividends.

Besides being able to magic cash, it doesn't seem like I have many options. A, get some more money in my company. B, take up employment and pay mega taxes. Amirite?

I must be missing something here as you appear to be struggling on £50k/year.

Taking a job would only put you into the higher rate tax bracket if you continued to take ~£40k in dividends.

Either your post isn't explaining things properly or you just need to cut down a bit in your spending.  Millions would love to have income of £50k/year!

I have read the OP's post differently and not that they are struggling on £50k.

I have read that the OP has been taking basic salary plus dividends, which comes to £50k drawings.

FlaatusGoat said:

I'm a limited company director and I receive a basic pay that's under the NI threshold. That plus my dividends puts me right at the end of the basic rate for this tax year.

Then that the OP is not currently working:

FlaatusGoat said:

Right now my company isn't making any money but there's enough in the coffers to keep me going for awhile. 

So, the option going forward is to get a regular employed job or re-start the Ltd Co trading again:

FlaatusGoat said:

It would be quite nice to boost my income as I'm running on savings but taking an employed job seems to be very inefficient from a tax perspective as any more earnings I receive will put me into the higher rate tax bracket. Ideally, my company would get back up on its feet and start making money again so I can at least pay myself after April via dividends.

So, the reference to "boost my income" means either a directly employed income or an income into the Ltd Co.
Directly employed income (now) would mean it is all taken at 40% tax rate.
Income into the Ltd Co. would be kept in the company and released as salary and dividend drawings once the new tax year if here.

That's how I read it - obviously different to how you read it.

If I have read it correctly, and the OP is not able to restart the Ltd Co., then the OP has an option to commence regular employment now and still avoid higher rate tax between now and the end of this tax year by putting all the earnings into pension (subject to contribution limits).
That would mean the OP is all ready to run from April with the employed salary and can top up with a little bit of dividend from the retained funds if employed salary is not making good use of the basic rate band next tax year. 
The OP can also use the dividend allowance next tax year.