[Closed] Money 'in' a limited company... Who's is it??

The company will still have to pay cooperation tax.

Apple don't seem to have a problem doing it - they're sitting on billions in cash.

There is an argument that if the company needs the cash to fund future growth/acquisition/operations, it shouldn't pay all its profits to shareholder(s).

I guess with single shareholder companies its a little more tricky. Especially if they aren't capital intensive and retaining cash in the corporate structure looks "artificial"

The money belongs to the company and cannot be removed without being accounted for to the taxman. The business will need to pay corporation tax on any profits after deductions for expenses including director/employee salaries and pensions. A director can take dividends out of taxable profits but will be liable for tax themselves depending on their tax bracket and size of the dividend. You can let money accrue in the business account but in the end you will still need to pay tax on any you take out as a director/shareholder unless it is part of your directors loan account (money the business owes you).

Money in a company ultimately belongs to the shareholders, but it’s not legally their money until the directors distribute the profits as a dividend or the company is wound up.

However, if you’re a single person company in today’s IR35 climate you’ll have a hard time not paying yourself most of the companies income as salary.

As others have said, whether you leave the money in or take it out corp tax will be paid on the profit.
If you're not a big spender then the spare money can be dumped into a pension to get corp tax liability down.

It's the companies money , not the directors or the shareholders or the staffs. It becomes the directors, shareholders or staffs when it is paid out as either salary or dividend. Tax is paid on any salary when it is paid. Corporation tax is paid on any company profits, dividends are declared out of any profits that remain after corp tax is paid, and Tax is paid on any dividends as part of the individuals self assessment tax return.

Can you simply pay yourself F-all but let loadsamoney acrue in the Ltd company bank account?

Yes you can do just that if you want, but as soon as the money is transferred to an individual from the company there will be tax to pay in the form of paye, tax on dividends, or ( if winding up the company or selling it) capital gains tax

Having read your previous threads, I'd strongly suggest talking to your lawyer - and accountant if you have one.

If somebody is the sole shareholder then I'd expect the assets to be 'counted' in proceedings - but I don't really know what I'm talking about.

Aside from tax though, I suppose if you want to appear poor in the eyes of some other agency you can.

Student loan agency for example will want evidence of income. Dividend would be included in this, but money sitting in the business account will not.

Avoiding child support or divorce payments..? Sorry..its the way you phrased the question!

Any half decent lawyer / accountant will be asking the right questions so its hard to claim poverty by paying a low salary. Unless it was thought about at onset and structured accordingly, the tax / obligation will be paid / due at some time!

AHH, ok, if it's a divorce thing then I guess the probing will be deeper and less well lubricated than the student loan company..🕵️

I suspect this has something to do with why Farmers but BIG tractors regularly...

Money paid to employees as PAYE is an expense so no corporation tax paid (but there may be employers NI and then employees NI and income tax to pay depending on the amount).

Corporation tax is 20%

Any dividends received by an individual are subject to 7% tax and as this is profit the company will have already paid 20% corporation tax.

It is all a juggling act of NI, tax etc etc. The aim of most is obviously to pay as little of those as possible but that can make you look poor so affect things like mortgages etc.

Last year it was more efficient give myself a high dividend and not pay any pension from my ltd company and then use the money put in a savings account to supplement my income this year as an employee of another company as it works out better for tax. I put a total of 30% of my income including my employers contribution into a pension this year. I am left with enough to live from and then any treats come out of last years dividend pot.

Nope, noting to do with tractors. Farmers buy big new tractors because big new tractors (that are efficient and don't break down) are what their businesses depend upon. Much the same reason that Eddie Stobbart buys big new lorries, or BA buy big new planes.

https://www.bbc.com/news/uk-41803022

Isn’t there also a 32.5% tax rate on dividends over a certain amount?

"However, if you’re a single person company in today’s IR35 climate you’ll have a hard time not paying yourself most of the companies income as salary."
Ok...
Well.. It's not me or my company.fyi..

DrP

It's not so much about tax..! More about the smoke and mirrors behind ones wealth...!

DrP

Don't you own half the business? Can that be used as leverage?

More about the smoke and mirrors behind ones wealth…!

In the longish term its all very transparent as a company's accounts are published so the businesses's finances are much more visible than anyone's personal position. If someone is falsely stating/hiding their current position in any discussion/transaction at the moment on account of cash held in a business the truth will become apparent fairly soon afterwards.

Can another person say “yes, well you say YOU’VE no money.. But your company has tonnes.. I. E you DO have money”??

People can (and probably will) say things like that! Can an authority force the issue? At the very least it will depend on the authority.

Ultimately if the company is sitting on a stack of cash the value of the company will be significant. So the true value of the shares will be reflected in that. The company is an asset like a second home, premium bonds or a pension. Some authorities consider total value and others only liquid value.

truth will become apparent fairly soon afterwards.
Assuming the correct returns are filed. If the spoils are potentially large, then a small fine for not submitting a return may not be a deterrent. And even if they are, depending on where the business is in its reporting cycle, it could be a year before the accounts are visible.

Bear in mind that cash is only one asset of a business, albeit the most liquid one. You could have £100k in cash, but equally have liabilities (loans for example) of say £80k, so net worth of the business is only £20k.

Member
It’s not so much about tax..! More about the smoke and mirrors behind ones wealth…!

DrP

I don't pretend to understand divorce courts, but it's not hard to prove wealth if your ex is the sole shareholder of a company with a net worth of £x, but it's not the same as having that money in the bank. I doubt they'd force the owner to sell up to give you half, but if they did a net worth of £x doesn't mean a sale price of £x.

As for the whole Corp Tax thing, yeah corp tax is lower than income tax, but I don't think it's a saving really.

Company makes £100k profit, pays £20k tax - is left with £80k yay, but if then you still have to pay the income tax on the £80k if you want to take it home Shirley?

Company makes £100k profit, pays £20k tax – is left with £80k yay, but if then you still have to pay the income tax on the £80k if you want to take it home Shirley?

Depends how you pay that out to the individual, if you do it as salary there is income tax, employers NI and employees NI to be paid on it.

If you pay it out as dividends there is also tax to be paid on that, but in the form of dividend tax & income tax, and no NI contributions . The most efficient method of paying it out will depend on the exact circumstances of the individuals involved. BUt its safe to say its not just £80k in the pocket of the individual in question.

Corporation tax is 20%

It's 19% now.

Company makes £100k profit, pays £20k tax – is left with £80k yay, but if then you still have to pay the income tax on the £80k if you want to take it home Shirley?

Depends how you pay that out to the individual, if you do it as salary there is income tax, employers NI and employees NI to be paid on it.

Which would reduce your corporation tax liability...

Which would reduce your corporation tax liability…

if the ordering of events is as per the post :-

Company makes £100k profit, pays £20k tax – is left with £80k yay, but if then you still have to pay the income tax on the £80k if you want to take it home Shirley?

Then it would reduce next years corp tax bill, but not the one you've just paid.

either way - there's tax to be paid on the money when you take it out of the company - its not tax free .

DrP, if this is CSA related I have had experience of this from one of my clients. They are a sole director in a one man limited company. The CSA hand access to his earnings from HMRC and when he left his employment to start the company they tried to say he had the same income. I, as his accountant, had to submit an earnings statement on his behalf including a note on predicted dividends. They then came back wanting and income projection for the company, which I refused as it is a separate entity to him. They then came back with wanting to know how much he was owed from the company in his directors loan account. I informed them of the amount but also pointed out this money was introduced from his previous earnings that they had calculated and taken CSA from with other amounts introduced from paying for business expenses out of his own pocket. They struggled with this concept and we went back and forth as they argued he could pay himself this money and it would be treated as income, to which I countered with it being an actual loan repayment transaction.
CSA then tried to argue that he was not paying himself enough dividends and this should be increased. I argued that they had no idea how much the company was making, they had no basis for how much dividends the company could pay and as a director his responsibilities were to the company and not himself. Going further to point out the current profits would pay for future investment, which would increase the companies income and the directors earnings.
It took over 6 months of back and forth letters until they conceded to base his CSA payments on his income, unfortunately they still included one of his children in the calculation who had gone onto university.
The CSA are unbelievably hard work to deal with but keep to the facts and document everything as they seem to work on wearing you down rather than reason.

It's not child support (as my income is simple to find from HMRC..)..but that's being contested at the mo as we've shared care for now..

But i guess it's similar to the case above...but it's not the man potentially 'hiding' the money in a limited company account..

It's about spousal maintenance, and possibly the act of minimizing ones income despite money acruing within a 'one man limited company account'..

DrP

In that case its not the money in the bank that you own but the net worth of the company that your shares own. I've not had to deal with the situation from a sole shareholder point of view as I've always set companies up as the main person owning the majority of the company with 90 ordinary shares and the spouse with 10% A Ordinary shares, which allows for different dividends to be paid and the minor shareholder to be easily bought out via the shareholders agreement. I'm assuming your accountant hasn't taken such precautions in creating your business. If not then you will be looking at a potential 50% of the business net worth, especially if you have no shareholder agreement in place.

49:1 set up of shares....

But it was a matrimonial 'creation', if you get what i mean..
TBH it's not a share of the business I'm after (i want to let her support herself), more the smoke and mirrors that can be created by only paying herself the bear minimum, despite the business running a VERY pretty profit...

DrP

If you’ve a limited company that is financially doing VERY well… But for, I guess, the purposes of the director/employee ‘appearing poor in the eyes of the taxman/AN other official agency’… Can you simply pay yourself F-all but let loadsamoney acrue in the Ltd company bank account?

Can another person say “yes, well you say YOU’VE no money.. But your company has tonnes.. I. E you DO have money”??

Firstly, as I'm sure you've already worked out for yourself, you can ignore the many posts about "how" to extract money from the company, or not, and the tax implications... since that is not what you're asking, is it?

At it's simplest, if you're sole shareholder, then the value if it stays in the company will be reflected in the value of the shareholding. So if the company is currently worth £10 and you own all the shares, you are worth whatever you've got plus £10 worth of shares in a company. If you increase the value of the company by £50K (say, by making a profit) you can take that out in various ways as others have described, in which case you will be worth whatever you've got (including whatever was left after tax of the £50K) plus £10 of shares. If you don't, you'll be worth whatever you've got elsewhere, plus £50,010 worth of shares. In theory it's a nil sum gain (ignoring tax). You could some shares is the simplest way of looking at it - you'll have the same increase in your money as you've seen a decrease in value of shareholding.

Where this doesn't work as simply of course is (a) where the shares are listed / tradeable so their value can be different from the balance sheet figure in the company (b) probably most "real world" scenarios to be frank and (c) the one that might be most pertinent in this kind of situation, where the person doesn't actually own the shares, they're held in trust, potentially an offshore trust, potentially a dodgy offshire trust created for the purpose of hiding that wealth away from the prying eyes of the divorce courts, CSA etc.

Firstly, as I’m sure you’ve already worked out for yourself, you can ignore the many posts about “how” to extract money from the company, or not, and the tax implications… since that is not what you’re asking, is it?

Correct, not what I'm asking (but appreciate i haven't asked clearly).

It all seems a bit muddy doesn't it.

Basically, i'm sure it's going to come down to me says "well yes, you might claim YOU have a very low income, but in reality the limited company that you solely operate under is doing extremely well...THOSE figures should be looked at..."

Hopefully??

DrP