What is best to use - dividends or savings

Threegingers

I have my own business- I don't know what to do with the money in the business. I have savings in my low interest paying bank account, I think I will pay interest on my savings as it is over £35k.

We want to do house works and pay for a new car etc in the future. Would I be better off paying myself dividends – getting taxed on them and then paying for the items while keeping my savings in an easy access or fixed savings account or an isa  ? or would I be better to use my savings to pay for the items and instead do something else with the business money?

Gary1984

It really depends how much salary and dividends you've already taken this tax year. It's quite tax efficient to take out money as dividends as long as total personal income doesn't exceed £50k in that tax year.

Do you have an accountant? If so give them a call/email to discuss.

jlfrs01

Use savings is the short answer, why pay tax if you don't need to, particularly if your savings are attracting little or no interest?
What you can do with the money in the business is to pay yourself a monthly salary or a dividend payment which is enough to earn NI but below the threshold for income tax. That will allow you to get it out without paying a chunk to the tax man.If you want to make a longer-term investment for yourself which is tax-efficent, pay some into a SIPP. Once you reach 55 upto 25% of this can be taken out tax-free.You could pay yourself a Director's Loan from the business, providing it is below £10,000 you won't be taxed but it will need to be paid back into the business before the end of whatever your company's year is. 

eskbanker

Hannahbiz said:

I have my own business- I don't know what to do with the money in the business. I have savings in my low interest paying bank account, I think I will pay interest on my savings as it is over £35k.

We want to do house works and pay for a new car etc in the future. Would I be better off paying myself dividends – getting taxed on them and then paying for the items while keeping my savings in an easy access or fixed savings account or an isa  ? or would I be better to use my savings to pay for the items and instead do something else with the business money?

Seems to me that you have two essentially separate issues - you should definitely have a strategy and plan for how to withdraw income from the business, i.e. how much and when and via what method, bearing in mind the corporate tax position, but also how to optimise your personal money, which should involve accounts paying decent interest while also considering personal income taxation.

As above, a conversation with your accountant (or getting access to one if you don't already) sounds worth doing, to ensure that you're not missing any opportunities - pensions are another area where it's important to adopt the optimal approach, especially if you "don't know what to do with the money in the business"....

Threegingers

Thanks all - I do have an accountant however they are limited in what advice they offer. I may need to find a specific tax advisor. Is this question best for an accountant / tax advisor/ financial advisor question?

I already pay myself a salary from the company which is the minimum amount. I don't pay much dividends to myself - but perhaps I should maximise this so that our corp tax is lower? If there an optimal time to pay the dividends out, i.e. before the end of the business year profits are calculated or after they are calculated?

I will earn decent interest on my savings, so it depends what is best to do i.e. keep my savings (remember i've already paid tax on them) and take more dividends from the company, pay the tax on them and then use that to pay for the house works etc - or keep the money in the business and use my savings to pay for the works.

Prism

Increasing your dividends won't change the corporation tax you pay. That is paid on profits regardless of if you pay dividends or not. One way to reduce corporation tax is to increase pension payments.

So you could increase dividends and pay tax on them. Make sure this doesn't tip you into higher rate income as the dividend tax will increase on that chunk.

eskbanker

Threegingers said:

I will earn decent interest on my savings, so it depends what is best to do i.e. keep my savings (remember i've already paid tax on them) and take more dividends from the company, pay the tax on them and then use that to pay for the house works etc - or keep the money in the business and use my savings to pay for the works.

But if you keep the money in the business for now, you'll presumably still need to pay it out at some stage, so that second option isn't really complete as a direct comparison as it just defers that issue?

jazzy23

some good advise here - i was wondering about the same things.