Question about ltd companies

[harpo_72]

My wife has a limited company, I operate out of it on short term contracts.
We were discussing what happens when we choose to retire... I was wondering if there is still money left in the company do you just take it as income and not actively seek work ? Or do you have to close it and get taxed on the balance left in it?

 

[fundy]

My wife has a limited company, I operate out of it on short term contracts.
We were discussing what happens when we choose to retire... I was wondering if there is still money left in the company do you just take it as income and not actively seek work ? Or do you have to close it and get taxed on the balance left in it?

you choose when to close the company, you arent forced to, what is the most effective way to distribute funds depends on how much there is and your circumstances, worth taking tax advice if there is much in there

 

[SocketRocket]

Any money in the Company belongs to the Company and not the Directors. When funds are removed they would normally be returned as either dividend, salary or pension fund payments. The tax you would pay will depend on what mix of these are used. As mentioned above you should take some good financial advice, if you use an accountant then that would be the first place to ask.

 

[harpo_72]

Thank you, it just came up at the dinner table and my view was take minimum wage until it dries up but I suppose there would be accountancy fees to do that.. so yes when the time comes hopefully it will be in a nice state

 

[fundy]

Thank you, it just came up at the dinner table and my view was take minimum wage until it dries up but I suppose there would be accountancy fees to do that.. so yes when the time comes hopefully it will be in a nice state

Ideally you should plan for it in advance and take the money from the company in the most tax efficient way over a period of time before it comes to the end rather than deciding what to do when you get to that point and having less options

 

[GreiginFife]

You have to weigh up the costs of keeping the company open. Dormancy costs will probably apply if you have a company active but no... well activity (income).
You will have accountancy fees and still require Self Assessment and Company returns doing each year.

You could look at closing the company, doing capital distribution between A and B shareholders evenly and paying CGT on it (first £24000 tax free I think it still is). I closed mine last year after being forced inside IR35 as after 6 months of inactivity dormancy fees would have kicked in so paying needlessly.

Way we did it was to distribute the max under CGT to A and B evenly (£12000 each) and then remainder under div/ends (@ 7.5%) to the point where we hit top bracket and then the remainder under CGT with entrepreneur's relief (10%).

That was the most tax efficient way for me at the time. It all depends on the amount as well as you have different trigger points on different amounts.

But I'd personally be cautious of keeping a dormant company open.

 

[harpo_72]

IR35 seems to be causing some fun and games.
I have a friend who has been dragged into it because his main activity is for one supplier and he is the one who is taking the hit. But times will change and then it will hit the organisations that are dependent on the freedoms that contract employees offer.
I was wondering if I had a route around IR35 in the future by using the cost centres of internal projects .. so it’s a case of supplying different customers but they are under a large umbrella. Might get not fly though.

 

[GreiginFife]

IR35 seems to be causing some fun and games.
I have a friend who has been dragged into it because his main activity is for one supplier and he is the one who is taking the hit. But times will change and then it will hit the organisations that are dependent on the freedoms that contract employees offer.
I was wondering if I had a route around IR35 in the future by using the cost centres of internal projects .. so it’s a case of supplying different customers but they are under a large umbrella. Might get not fly though.

The main issue is that we no longer decide and determine if we are inside or outside of IR35. It's the client that has to decide. And they are taking the overly cautious route in 9 out of 10 cases.

Statement of work (very strict SoW) seems to be the only way "around" IR35 but then that opens up another can of worms and basically limits that "freedom" of using contract resource that big orgs like.

I give it 6-9 months and big orgs will be lobbying their politco friends to change the rules again. It is in no one's interests to keep it the way that it is.

 

[IanM]

In addition to the above... how much are you paying into pensions from there? Can you squirrel it away using that?

I had a very specific conversation with my accountant about the winding up process ahead of retiring. Worth having. I will probably leave the co open in dormancy as I might do the odd bit in the future

 

[Ethan]

IR35 is having a big effect. As someone said above, companies seem to be taking a strict line. I was in a contract with a UK based company scheduled to end on 31 March (as all their contracts were) for an IR35 reassessment. The HR department judged it inside, and the hiring manger was unable to improve the rate enough to counterbalance the effects and keep me. I suggested a more specific project-based statement of work, but the HR department wouldn't allow that, so I let the contract finish and moved to a contract with a different company based in the EU, outside IR35 and a better base rate to boot.

There really is little point in being a contractor inside IR35. Need to be either a perm employee with benefits or a proper contractor.

 

[harpo_72]

The main issue is that we no longer decide and determine if we are inside or outside of IR35. It's the client that has to decide. And they are taking the overly cautious route in 9 out of 10 cases.

Statement of work (very strict SoW) seems to be the only way "around" IR35 but then that opens up another can of worms and basically limits that "freedom" of using contract resource that big orgs like.

I give it 6-9 months and big orgs will be lobbying their politco friends to change the rules again. It is in no one's interests to keep it the way that it is.

Yes the Auto OEMS use contract labour to meet their demands and it was and is relatively well paid. Also it was and is an opportunity for young grads to get started. But the OEMS are retracting so they will either not get the quality they want or they will have a high turn over in personnel.
Not sure if they will lobby or will look that far ahead, but when it’s boom time, they will get or have to pay high hourly rates.
The ridiculousness of all of this is the addition of extra services in between what could be a direct relationship between customer and supplier ..

 

[harpo_72]

IR35 is having a big effect. As someone said above, companies seem to be taking a strict line. I was in a contract with a UK based company scheduled to end on 31 March (as all their contracts were) for an IR35 reassessment. The HR department judged it inside, and the hiring manger was unable to improve the rate enough to counterbalance the effects and keep me. I suggested a more specific project-based statement of work, but the HR department wouldn't allow that, so I let the contract finish and moved to a contract with a different company based in the EU, outside IR35 and a better base rate to boot.

There really is little point in being a contractor inside IR35. Need to be either a perm employee with benefits or a proper contractor.

That’s where I am as well. I have another issue in that Sweden have a tax requirement on 45days work or more in their country which then hits you with 28% tax and none of the benefits ( government pension, medical, child care etc..)
So I have openly stated my concerns about this and I am looking at total cost impact .. that will then be passed directly on with my inconvenience mark up or I stay in the UK and limit my travel to 45 days .. The thing is the company has many skilled multi nationals in the same predicament and they have found Covid and working from home has not impacted them, in fact it’s been more positive.

 

[GreiginFife]

Yes the Auto OEMS use contract labour to meet their demands and it was and is relatively well paid. Also it was and is an opportunity for young grads to get started. But the OEMS are retracting so they will either not get the quality they want or they will have a high turn over in personnel.
Not sure if they will lobby or will look that far ahead, but when it’s boom time, they will get or have to pay high hourly rates.
The ridiculousness of all of this is the addition of extra services in between what could be a direct relationship between customer and supplier ..

It will start to bite. I am with one of the big banks at the moment and to secure my services inside IR35 they are having to pay 1.75 times what they would have if it had been outside.

That is not sustainable but they need the skillset as it does not exist in their current Op Model.

 

[harpo_72]

It will start to bite. I am with one of the big banks at the moment and to secure my services inside IR35 they are having to pay 1.75 times what they would have if it had been outside.

That is not sustainable but they need the skillset as it does not exist in their current Op Model.

That’s exactly it and as a specialist and a contractor to boot, I don’t teach or share any of my skills. Which may sound selfish, but 20yrs of graft needs to give its rewards.