Limited co - Idle funds, Dividends &/or salary, pls help

[Bee1x]

Hello everyone,

My husband & I are directors in a Limited company (incorp. Sept.2009), in which he offers IT consultancy services. He’s also working full time. We both are shareholders in the company (£1 paid up capital). We haven’t drawn any salary or dividends so far from the company.
I have no income since I am unemployed for last a year and a half. However, I have been managing the affairs of the company like filing the returns, maintaining records, banking and other secretarial work.
The company has filed its annual accounts for last year & the tax will be paid before the due date. The company has accumulated reserves from last year to the tune of £1300 and professional net income to date of £2000 plus an estimated income of £900 for the year ended Oct, 2010. The funds are just lying in the business bank account. The company has no expenses, as such, since my husband works from home and submits his work online. So, there are no travel costs or telephone costs, though he uses the home computer for his consultancy work.

We are now seeking advice on taking dividends from the company and I also wish to know is it advisable for me to also take salary from the company and if yes, then how much? Can we take salary or dividends retrospectively? I am looking for a legitimate means of tax savings and at the same time getting value of the time & effort I invest in the company.

Many Many Thanks for your time.

Any help / advice is appreciated.

Best Regards
Bee

[Incredulum]

When is the company's year end? I am confused. You state it was incorporated Sept '09, has an October '10 year end... yet you have already filed accounts?

How much does your husband earn?

How many hours did your husband work for his company during the accounting year? And you?

[Bee1x]

Thanks for your reply

The date of incorp. is Oct, 2008. Apologies for stating that wrong. Initially the company was dormant and started business only in Jul, 09. We filed the company annual accounts (with the companies house) for the year ended 31st Oct, 09, which show accumulated reserves (or net P&L) of c£1300. Now for current year, the net professional income upto date is c£2000 and we anticipate that rest of the year we would earn £900 as professional fees.
My husband has a full time job, where he is paid c£40k. For this consultation business, he works on the weekend for 7 - 12 hours a month, depending on his client requirements. I work roughly 7 hours on a monthly basis.

For the current year, can we draw salary or dividend retrospectively (not from last year, just this year)?
The company's first accounting period end date is 31/12/2009 (for corporation tax purposes)

I would have referred to an accountant, if I could afford one. Considering that I am out of work for last 17months, it hasnt been a smooth ride.

Thanks for your time and help.

Best Regards
Bee

[Incredulum]

7 hours per month for clerical work - I reckon your company might pay you £600 per year, reasonably (£7 per hour?)? And I personally don't see why it cannot pay you for last year's activity too. That is obviously tax deductible for the company.

Similarly, salary payments to your husband are tax deductible in the company, but he will be taxed on them at 20% until his total earnings reach 44k. That should be cheaper than the tax rate suffered by the company.

If salary payments mean the company makes a tax loss this year it should be able to carry the loss back to last year to reclaim tax.

I'm not going to guess at the NI implications, I'm sure somebody else will know.

Where did HMRC get to on the income shifting (post Arctic Systems) legislation? Was it ever passed?

Other ways of getting income out of companies tax free?


As a matter of interest, why did you bother with a company?