Income left in company

[BillG]

I am a director of a two year old company that is seeking investment to expand tropical forestry assets in an overseas subsidiary.

I have a £60,000 p.a. salary but need to take only £2,000 each month and wish to leave £3,000 each month in the company in the form of investment.

Do I have to pay income tax on the full £5,000 each month or just the £2,000 I am receiving. If I have to pay Income Tax on the full £5,000 each month, is there any way I can invest in the company that does not involve paying IT?

[bd6759]

The obvious question is why take £60K if you only need £24K?

[BillG]

It isn't my company. I am a director and would like to invest in the business as I believe that it has enormous potential. I do not have spare funds to invest but can afford the £3k per month that are excess to my immediate requirements. The value of the company is rising, so I wish to put in whatever I can as the money becomes available.

[AmanSood]

Hi BillG

It's important to structure the arrangement correctly. Currently even though you are investing the £3k in the company, you would be subject to tax on the full £5k a month. You could contractually reduce your salary to the £2k per month and the Company can give you free shares up to the value of the £3k a month. But as you are an employee, you would be taxable on these free shares but depending on whether there are any trading arrangements you may only have to pay tax and no NIC (so may be more cost effective for both you and the Company) compared to for example taking the full net after tax/NI salary and reinvesting this in the Company.

Aman

[BillG]

Hi BillG

It's important to structure the arrangement correctly. Currently even though you are investing the £3k in the company, you would be subject to tax on the full £5k a month. You could contractually reduce your salary to the £2k per month and the Company can give you free shares up to the value of the £3k a month. But as you are an employee, you would be taxable on these free shares but depending on whether there are any trading arrangements you may only have to pay tax and no NIC (so may be more cost effective for both you and the Company) compared to for example taking the full net after tax/NI salary and reinvesting this in the Company.

Aman

Many thanks for that Aman. Your advice very helpful.

You say the company can "give you free shares". Is there no restriction on a company just "giving" shares? Does there not have to be some consideration?

BillG

[AmanSood]

Hi Bill, I mentioned in my previous message that the free shares will be taxable but potentially no NIC would be payable. hence there could be a small benefit to this..

Aman

[SteLacca]

You would be as well speaking to, perhaps, the company's accountant as the transactions in securities legislation (which is what AmanSood is referring to) can be complex, and as he alluded to you need to structure it correctly to avoid it being counteracted by HMRC.

[BillG]

You would be as well speaking to, perhaps, the company's accountant as the transactions in securities legislation (which is what AmanSood is referring to) can be complex, and as he alluded to you need to structure it correctly to avoid it being counteracted by HMRC.

Yes, I'll do that.

Many thanks