Additional rate tax payer

[mattio]

Hello, i have my own ltd company and am the only employee and share holder.

am i right in saying that for profits above 150k i will pay less tax if i retain money in the company and pay 21% corporation tax and 28% capital gains tax when i sell the business than if i pay 21% corporation tax and draw the money out as a divided and pay 32.5% dividend tax?

it seems to me like i'm better of leaving the money in the business until i sell it even if i dont qualify for entreprenurs relief because i am deemed a non trading company.

i realise they may increase the CGT rates in future but at the moment income taxes are so much nastier than capital gains taxes especially above 150k that this would seem a clever way of eventually getting the money out of my company??

thanks for any help

matt

[section 44]

A few points to consider:

An additional rate taxpayer effectively pays tax at 36.1% on dividends received (strictly taxed at 42.5% but the effect is reduced by the credit equal to one ninth of the dividend paid).

If you were to sell the company with the benefit of retained profits then the anti-avoidance transactions in securities rules should be considered. Very broadly these rules can deem there to be an income receipt if there has been avoidance by turning income into capital (for example, selling the shares in the company for a higher price to reflect undistributed profits).

The company will pay tax on its profits. You will pay tax on your income and gains (that is, profits realised by you such as dividends or salary).

If you were thinking of reinvesting the profits then it would make sense for those profits to be reinvested by the company so that only corporation tax is incurred and not income tax as a result of any dividend or salary.

[ensigntaxation]

Hi Mattio,

How's it going?

What you say is broadly correct.

However, it really depends on what you are looking to do with the funds you've accumulated in the company. For example, if you wanted to invest in a personal property, the it is possible to do this using the funds in the co without having to pay yourself a dividend, for instance.

If you are talking about selling the company to a third party - then the anti-avoidance provisions mentioned will not bite. There is a specific exemption in the (fairly) recently amended rules.

As I say, depends on what you want to use the 'funds' for.

HOpe this helps. Any Qs then let me know.

Cheers
Andy