Save. Or invest

jazzy23

My accountant doesn't recommend me taking dividends because of the 8.3% tax I will pay but I am thinking its better to invest in a stocks and shares isa.  He says it will never make as much as tax i pay but otherwise its in a savings account at 4%.
Surely it's better to get the investments to grow, but I can see his point.
Thoughts?

eskbanker

jazzy23 said:

My accountant doesn't recommend me taking dividends because of the 8.3% tax I will pay but I am thinking its better to invest in a stocks and shares isa.  He says it will never make as much as tax i pay but otherwise its in a savings account at 4%.
Surely it's better to get the investments to grow, but I can see his point.
Thoughts?

I can't make sense of that - the fundamental decision about saving or investing is an important one but taxation is a separate matter, so using wrappers such as ISAs will generally be preferable to leaving money unwrapped whichever route is chosen.

Edit: re-reading, you're presumably referring to taking money out of a limited company but again, the question of whether or not to do so is essentially unrelated to what's done with it after that, except if making pension contributions.

jazzy23

Yes it's out of a ltd company. It's not for pension. That's in place.
It's dividends after corporate tax which I will obviously pay personal tax on 
He's recommending me leaving the profits in the company savings account.
I am suggesting to take it, pay the tax, and invest it!?

eskbanker

jazzy23 said:

Yes it's out of a ltd company. It's not for pension. That's in place.
It's dividends after corporate tax which I will obviously pay personal tax on 
He's recommending me leaving the profits in the company savings account.
I am suggesting to take it, pay the tax, and invest it!?

Obviously both you and your accountant have sight of far more detail of your financial circumstances than the rest of us but in your shoes I'd be expecting a realistic comparison on a like-for-like basis - it's plausible that there's merit in keeping funds within the company for now but at some stage they'd need to be paid out to you as an individual, so any evaluation of comparative pros and cons needs to factor that in, i.e. what's his proposal for extracting the money from the company at a later date?

dunstonh

My accountant doesn't recommend me taking dividends because of the 8.3% tax I will pay but I am thinking its better to invest in a stocks and shares isa.  He says it will never make as much as tax i pay but otherwise its in a savings account at 4%.

There is not a logical tie up of information there.  

Dividends are better than salary most of the time.     
S&S ISA contributions are after you have paid corporation tax and dividend tax.  (or income tax & NI which would be higher tax than dividends and corporation)

Pension is the obvious winner here as you avoid corporation tax and you avoid dividend tax (or income tax and NI).   When you draw it in retirement, you suffer an effective 15% tax which is better than any other method.

Yes it's out of a ltd company. It's not for pension. That's in place.

What do you mean "in place"?
Its not a product where you set it up and tick the box and move on.
You are looking at S&S ISAs but the pension tax wrapper trumps S&S ISAs.   So, you need to consider pension.  You may eliminate it for other reasons but as far as which option is the best financially, that would be the pension.

He's recommending me leaving the profits in the company savings account.
I am suggesting to take it, pay the tax, and invest it!?

What is the objective with this money?   You have given two potential solutions (but there will be more). However, you haven't given us the scenario to apply those solutions.  Are those solutions suitable for the objectives?

jazzy23

Some good points there - I have gone back to my accountant and asked if we could simply pay it a pension contribution so saving corporation tax and dividend tax - lets see what he says!

I hope i can understand all your comments - thanks

eskbanker

jazzy23 said:

Some good points there - I have gone back to my accountant and asked if we could simply pay it a pension contribution so saving corporation tax and dividend tax - lets see what he says!

As pension contributions will typically be the most tax-efficient method of extracting money from such small limited companies, if you need to prompt him to consider this then you might wish to consider changing accountants!  Granted, the role of accountant isn't the same as that of financial adviser, but this sort of thing is pretty standard....

jazzy23

yes I agree with you - he wont say anything and basically I have just blundered on.... ah well, better late than never

solidpro

Obviously consider if you pay company contributions into the person, you won't be able to touch most of of until you reach retirement age, and whilst it's really helpful with tax today, you can't spend what you've saved in tax when you're dead.

nottsphil

solidpro said:

Obviously consider if you pay company contributions into the person, you won't be able to touch most of of until you reach retirement age, and whilst it's really helpful with tax today, you can't spend what you've saved in tax when you're dead.

So you're suggesting not paying into a pension in case you die before retirement age....

dunstonh

solidpro said:

Obviously consider if you pay company contributions into the person, you won't be able to touch most of of until you reach retirement age, and whilst it's really helpful with tax today, you can't spend what you've saved in tax when you're dead.

You cannot spend money in a bank account, ISA or whatever you choose if you are dead.    The pension can be inherited just like other tax wrappers/options.