Paying myself from a business in a tax efficient way - HELP please!

Jules_M_2

I am one of four directors of a social enterprise (CIC) that has no employees. Three of us work for the business in a self-employed capacity and invoice the CIC for fees and expenses. We also work for other clients, not just the CIC. The CIC is limited by guarantee, not shares, so we do not take any money from it unless we are actually delivering work for it.

Last FY we started a new project, delivered by me for the CIC, in which schools (our clients) pay for two years of support, up front. What this means is that in addition to the CIC retaining its operating costs proportion of each contract (typically 10% of the fee), I personally need to set aside a chunk of the schools' fees to ensure I can be paid for the full two years of support.

The issue is whether this 'surplus' that covers delivery costs for two years should stay in the CIC's business account (where each new payment will be subject to 20% corporation tax, and then subsequently 20% income tax when I invoice for it) or whether I should invoice the CIC for ALL of my share of the payment, at the end of each financial year - the fee therefore only being subject to my income tax.

It seemed a no-brainer to start with - I planned to invoice all of 'my' portion of the fees from each FY, pay income tax on it and set it aside in a savings account so I can draw on it when needed. Thereby avoiding corporation tax on that part of the fee, and only paying personal income tax on it.

However, this FY, doing this will take me well over the 40% tax threshold meaning (if I'm correct) that it will be subject to 40% tax anyway. I am NOT trying to avoid tax - I pay it happily and the business does too. But we'd like our (very small) surpluses to be spent supporting the families and schools we work with rather than being taxed twice.

I do have an accountant but they are proving very difficult to pin down to discuss this with - I've been asking for weeks - and my OH had a brainwave of asking here.

I'd be so grateful for some perspectives on this. Thank you.

*Edited to clarify a couple of points

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/6661811/paying-myself-from-my-business-in-a-tax-efficient-way-help-please

I find that very confusing.

You refer to "your business" but then also a CIC which, presumably, is not "your business" and then to you being self-employed and invoicing the CIC. You confirm that you (presumably the sole trader you) also work for other Clients.

Is all your work on sole trader basis or do you have your own Ltd Co? One of which you are sole shareholder and sole director.

Changing arrangements with the CIC so that you pay less tax is not going to have good optics - the CIC is, as the name implies, operating to benefit the community.

Jules_M_2

Thank you for your reply and I'm sorry I wasn't clear.

The CIC has four directors of which I am one. As I am the founder and the person with significant control, I do tend to refer to it as 'my' business but you are right of course, it's not 'mine'. However we are limited by guarantee not shares so none of us draw any money from the CIC other than fees for fixed term, fixed fee projects we deliver for the CIC.

As a sole trader I am not a limited company, I'm just me. The other two directors (the fourth is retired and a 'non-working' collaborator) are similarly self employed for the purposes of delivering projects for the CIC.

As a CIC we reinvest the surpluses from our teeny tiny turnover into the schools and families we work with and we have done just that for 14 years. However, we also need to cover the costs of delivering our projects over multiple years and that's where I've come unstuck.

I think I need to actually turn up at my accountants' office and demand they help me before FYE…

Grumpy_chap

I think I need to actually turn up at my accountants' office and demand they help me before FYE…

You have probably left it too late to get much resolved through your Accountant by FYE. They are probably already busy with year-end requests and unlikely to respond well to anyone demanding anything and, to be honest, unlikely to have a great deal of capacity to take on additional requests made in the most exceptionally humble and polite manner.

Remember, FYE is either tomorrow for businesses that have adopted March YE, or -effectively - this Thursday (3 days away) for individual working to tax YE. After CoB Thursday every day is Bank Holiday or weekend until the shiny new tax year has started.