lump-sum mortgage from company accounts?

dt_matthews

hi

hope someone can advise me.

My current mortgage fixed term expires in the next couple of months and I am considering paying off a lump sum (e.g. circa £30-35k). I run my own Ltd Company (in Computer Services industry) and the books have more than the required amount to fund the payment BUT I am not clear;

a. Whether this would be possible via a direct withdrawal from the company accounts
b. What the tax implications of that would be (punitive or otherwise!)
c. Or a more intelligent alternative to paying off a chunk of the mortgage

There wouldnt be any mortgage repayment fees or anything so the query really is based on the tax implications of paying money from the company books (if possible) and how it would need to be declared / accounted for....

any advice very apreciated!

cheers,
dan

CannyJock

Just an add-on to the last reply.

If you're below the higher rate tax bracket, dividends is probably the best option, provided you've funds to pay your corporation tax on profits first - can't just look at bank balance and decide you'll have it (separate tip for small Ltd co is to do a monthly transfer to a linked business reserve account for the tax on that month's profit, plus a few hundred each month for your audit fees - the rest of the money is available to you).

If you read through the HMRC site on beneficial loans you'll see that you can only borrow up to £ 5000 from the company, and there's time limits before it becomes beneficial.

"getting money out of a Ltd co" is a classic problem, probably worth a whole sticky thread on it's own.

silvercar

When I did this I first transferred the money to my personal current account and then paid the mortgage from there. Not sure if it was necessary but it was certainly tidier.

If you do it straight from your business to your mortgage, it would still be a payment on your behalf, so would need to be accounted for in some way.

If it can't be repayment of a loan then I was advised that paying your self a dividend is the most cost effective way.

The tax hit me nearly 2 years later, as it was included in the business accounts for that year and then in my self assessment for the year in question, for which the SA date was the January the following year.

It was a double whammy as the SA then generates a request for payment on account, by assuming you will have the same income the following year.

dt_matthews

thanks for the tip. i have been told that a dividend may well be the better way to get money out of the accounts -- do you know what level this would be taxed at?

stphnstevey

I am a novice here - but I think 10%? I think it depends on the amount as well

silvercar

divdends are added to your income and taxed at your marginal rate, but there is an assumed 10% tax already paid eg if your dividend is £10,000 it is assumed this is a net figure with the gross figure of £11,000 and a tax credit of £1,000. So on your tax return you !!! £11k to your income and £1k to tax already paid and you pay (more) tax at your marginal rate.

Cook_County

If you make a distribution from the company you need to follow:

1. Company law, and

2. Tax law

You do not appear to be confident with either at the moment so take advice from the company's accountant.

stphnstevey

silvercar wrote: »

divdends are added to your income and taxed at your marginal rate, but there is an assumed 10% tax already paid eg if your dividend is £10,000 it is assumed this is a net figure with the gross figure of £11,000 and a tax credit of £1,000. So on your tax return you !!! £11k to your income and £1k to tax already paid and you pay (more) tax at your marginal rate.

Nice and easy to understand then !!!!!:eek: