stevio
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Post by stevio on Apr 19, 2016 19:25:06 GMT
With new savings allowance and dividend tax as well as starting to invest in P2P and having a huge increase in savings income from previously, I'm looking at the best tax efficient combination of salary, savings income and dividends. Wondering what other Ltds are doing in this respect? SteveT duck Investboy pikestaff bababill jackpease sl125 profunder Monetus paul123Initially thinking: • PERSONAL ALLOWANCE = £11,000 SALARY: Will incur some EMPLOYERS and EMPLOYEES NATIONAL INSURANCE • EMPLOYERS NI at 13.5% o refunded up to £3000 o requires more than one employee • EMPLOYEES NI at 12% o difference between Primary Threshold and Personal Allowance o approx. £355.20 o 12% better than 20% CT on dividends (If pay salary HIGHER than personal allowance • 12% Employees NI • 20% IT • 32% overall, which is higher than 20% CT dividends (and even 20% + 7.5% = 27.5% dividends)) • SAVINGS STARTING RATE BAND = £5,000 o Claim as long as SALARY AND SAVINGS income is below £16,000 (doesn’t take into account Dividends) o Can only use for SAVINGS Save £1000 (£5000 at 20%) on what would pay on savings o Need to keep savings BELOW £5000 At 12% P2P, £5000 interest is £41,666 or REDUCE SALARY so still retain allowance • PERSONAL SAVINGS ALLOWANCE = £1,000 o Claim as long as SALARY AND SAVINGS income is below Basic Rate Tax Band £43,000 (doesn’t take into account Dividends) o Able to increase Basic Rate Tax Band with PENSION contributions??? o Can only use for SAVINGS o At 12% P2P, £1,000 interest is £8,333 • DIVIDEND ALLOWANCE = £5,000 o Already paid 20% CT o Above this up to BASIC RATE TAX BAND (£43,000) = 7.5% (+20% CT=27%) o Dividends ABOVE the basic tax band = 32.5% (+20% CT=52.5%) So: 11k SALARY 5k SAVINGS INCOME 1k SAVINGS INCOME 5k DIVIDEND INCOME that way only paying 20% CT on 5k Dividends |
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stevio
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Post by stevio on Apr 19, 2016 21:25:06 GMT
You've ignored company pension contributions. Also, Paying £10,000 salary or more means you must provide a workplace pension. You don't need more than one employee to get employers allowance, you need one or more employees, none of whom are the director of a single person company. Probably. Thanks I didn't include company pension contributions as they are independent of the tax bands We already have a SIPP, so don't believe we need a workplace pension, also think have another year before auto enrolment kicks in for us I don't think it's specified that none of the employees can be a director, just that a single director is not the sole employee. Therefore if two directors are employees, there is nothing to say you can't then qualify
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duck
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Post by duck on Apr 20, 2016 5:14:20 GMT
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pikestaff
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Post by pikestaff on Apr 20, 2016 6:01:11 GMT
duck - Contrary to stevio's assumption, I don't invest via a limited company, and nor does my wife. National Insurance is a bit of a closed book to me, but I had been wondering whether using a company could offer her a cost-effective way to accrue more qualifying years for the state pension. Any thoughts?
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pikestaff
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Post by pikestaff on Apr 20, 2016 6:37:41 GMT
paul123 - Thank you. I know she can do it that way (although there are some interesting wrinkles in mc2fool's posts). I just wondered whether it might be possible for her to get qualifying years more cheaply through actual NICs. If that were the case it could offset the costs of having a company and make it worthwhile to set one up.
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SteveT
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Post by SteveT on Apr 20, 2016 6:47:34 GMT
duck - Contrary to stevio 's assumption, I don't invest via a limited company, and nor does my wife. National Insurance is a bit of a closed book to me, but I had been wondering whether using a company could offer her a cost-effective way to accrue more qualifying years for the state pension. Any thoughts? That's certainly one of the reasons I opted to lend via a company (no longer having another salaried income). By drawing a salary each year between the NI LEL and NI PT, I receive another qualifying year for state pension purposes without incurring any actual NI liability. However I was fortunate already to have a company established and to have access to "in-house" book-keeping!
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duck
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Post by duck on Apr 20, 2016 7:42:33 GMT
National Insurance is a bit of a closed book to me, but I had been wondering whether using a company could offer her a cost-effective way to accrue more qualifying years for the state pension. Any thoughts? With suitably low pay and using the scheme I highlighted you are still credited with a 'full credit' against NI and you end up paying no NI. I ended up with 43 years fully paid, many as a contractor with a low earnings exemption in place. It has been confirmed that I will be entitled to a full pension when I reach the required age. I have a feeling your wife might well be able to find a 'cost effective' way .....
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pikestaff
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Post by pikestaff on Apr 20, 2016 7:52:25 GMT
duck - Contrary to stevio 's assumption, I don't invest via a limited company, and nor does my wife. National Insurance is a bit of a closed book to me, but I had been wondering whether using a company could offer her a cost-effective way to accrue more qualifying years for the state pension. Any thoughts? That's certainly one of the reasons I opted to lend via a company (no longer having another salaried income). By drawing a salary each year between the NI LEL and NI PT, I receive another qualifying year for state pension purposes without incurring any actual NI liability. However I was fortunate already to have a company established and to have access to "in-house" book-keeping! If we do it, I will be the one doing the book-keeping  . I guess I'd have to register the company for PAYE with HMRC so that they know what's going on, and get some software to do it. Lots of hassle but it's "free" money. The only slight issue would be justifying her salary. Does anyone have thoughts/experience on this?
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SteveT
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Post by SteveT on Apr 20, 2016 8:00:27 GMT
That's certainly one of the reasons I opted to lend via a company (no longer having another salaried income). By drawing a salary each year between the NI LEL and NI PT, I receive another qualifying year for state pension purposes without incurring any actual NI liability. However I was fortunate already to have a company established and to have access to "in-house" book-keeping! If we do it, I will be the one doing the book-keeping . I guess I'd have to register the company for PAYE with HMRC so that they know what's going on, and get some software to do it. Lots of hassle but it's "free" money. The only slight issue would be justifying her salary because she'd not actually be doing a whole lot. It seems a bit dodgy. Does anyone have thoughts/experience on this? I've found no need for any bought-in software; HMRC's free "Basic PAYE Tools" is perfectly adequate (once you have the company's Government Gateway log-in set-up). I submit monthly "Period with no payments to employees" notices for 11 months of the year (about 30 seconds work) and then draw my annual salary in month 12.
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stevio
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Post by stevio on Apr 20, 2016 8:26:32 GMT
That's certainly one of the reasons I opted to lend via a company (no longer having another salaried income). By drawing a salary each year between the NI LEL and NI PT, I receive another qualifying year for state pension purposes without incurring any actual NI liability. However I was fortunate already to have a company established and to have access to "in-house" book-keeping! If we do it, I will be the one doing the book-keeping . I guess I'd have to register the company for PAYE with HMRC so that they know what's going on, and get some software to do it. Lots of hassle but it's "free" money. The only slight issue would be justifying her salary. Does anyone have thoughts/experience on this? It should not be too hard to justify a salary that low, even if your wife just does admin for the business Bear in mind that if she has other salary/income, it might push her into a higher rate band depending on levels of income You might want to also consider company pension payments (saves on CT for the company) and also personal pension payments up to the salaried amount (you will receive IT relief, even though you (might) not paid any IT on the salary) Additionally, depending on other income, you might want to consider using the 0% £5k savings income band, as well as the 1k savings allowance Hence why I started this thread to discuss the best combinations of salary, savings, dividends (and also pensions as paul123 pointed out)
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bababill
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Post by bababill on Apr 22, 2016 5:36:54 GMT
I stopped taking a salary about two years ago when my company ceased 'trading.' Hence no longer NI contributions. Probably only have 15 years accumulation built up. Now take maximum dividends allowed whilst still staying under the 40% tax bracket. Probably not the wisest thing but I don't have much hope for the state pension.
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james
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Post by james on Apr 24, 2016 7:00:26 GMT
duck - Contrary to stevio 's assumption, I don't invest via a limited company, and nor does my wife. National Insurance is a bit of a closed book to me, but I had been wondering whether using a company could offer her a cost-effective way to accrue more qualifying years for the state pension. Any thoughts? The cheapest way to get extra years is to register as self-employed with HMRC and pay Class 2 NI contributions. Those cost just £2.80 a week and can be paid voluntarily if the business activity has a profit below £5,965 a year. There is a consultation to abolish Class 2 NI but it hasn't happened yet and is not expected to happen until the 2018-9 tax year at the earliest. The business activity can be something as simple as trading a tiny bit with no profit on an online auction site. Of course while cheap it does come with the inevitable obligation to complete a tax return each year, which probably won't be unduly onerous when done online. If you want to avoid that, paying voluntary Class 3 NI at £14.10 a week instead of £2.80 a week is the way. There is no need for a limited company nor anything other than declaring as self-employed, though do do at least something to support the trading declaration. The next cheapest way is to buy past years via Class 3 NI if any of those are available. This is because past years start out costing the original rate for a couple of years and that is cheaper than today's rate. Finally the most costly way for ongoing contributions but still cheap and excellent value is ongoing voluntary Class 3 NI contributions that cost £14.10 a week and can be paid most easily by monthly direct debit. Before doing anything it's usually fast and easy to check the online National Insurance record check or State Pension Statement. Both of those and more are available via the online Personal Tax Account. A mobile phone to receive text codes when logging in is currently required. All services are available thorough any of those gateways. The NI record check will say for each year whether that year counted for the basic state pension/flat rate/single tier pension or not and say why. The state pension statement will give current and maximum possible state.
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stevio
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Post by stevio on Apr 24, 2016 11:09:02 GMT
I stopped taking a salary about two years ago when my company ceased 'trading.' Hence no longer NI contributions. Probably only have 15 years accumulation built up. Now take maximum dividends allowed whilst still staying under the 40% tax bracket. Probably not the wisest thing but I don't have much hope for the state pension. Leaving the money in the company and effectively using it as a pension, either by drawing on the funds or closing down the company and using ER, is quite wise! Particularly if you have also used funded a pension via company funds and saved CT
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stevio
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Post by stevio on Apr 24, 2016 11:57:06 GMT
duck - Contrary to stevio 's assumption, I don't invest via a limited company, and nor does my wife. National Insurance is a bit of a closed book to me, but I had been wondering whether using a company could offer her a cost-effective way to accrue more qualifying years for the state pension. Any thoughts? The cheapest way to get extra years is to register as self-employed with HMRC and pay Class 2 NI contributions. Those cost just £2.80 a week and can be paid voluntarily if the business activity has a profit below £5,965 a year. There is a consultation to abolish Class 2 NI but it hasn't happened yet and is not expected to happen until the 2018-9 tax year at the earliest. The business activity can be something as simple as trading a tiny bit with no profit on an online auction site. Of course while cheap it does come with the inevitable obligation to complete a tax return each year, which probably won't be unduly onerous when done online. If you want to avoid that, paying voluntary Class 3 NI at £14.10 a week instead of £2.80 a week is the way. There is no need for a limited company nor anything other than declaring as self-employed, though do do at least something to support the trading declaration. The next cheapest way is to buy past years via Class 3 NI if any of those are available. This is because past years start out costing the original rate for a couple of years and that is cheaper than today's rate. Finally the most costly way for ongoing contributions but still cheap and excellent value is ongoing voluntary Class 2 NI contributions that cost £14.10 a week and can be paid most easily by monthly direct debit. Before doing anything it's usually fast and easy to check the online National Insurance record check or State Pension Statement. Both of those and more are available via the online Personal Tax Account. A mobile phone to receive text codes when logging in is currently required. All services are available thorough any of those gateways. The NI record check will say for each year whether that year counted for the basic state pension/flat rate/single tier pension or not and say why. The state pension statement will give current and maximum possible state. When you say 'pay' james , do you mean you need to deduct NI from profits? With a salary that qualifies for NI contributions towards state pension, no NI is actually deducted from the salary. Yes there are admin costs, but for those that have a company for other purposes, this might be the cheapest way to contribute towards the state pension and still be tax effecient the with regards CT relief
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james
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Post by james on Apr 24, 2016 12:02:37 GMT
By pay I meant hand over money to HMRC. I wasn't assuming PAYE employee of limited company but rather a person making £10 a year by online auction site sales just to qualify for the Class 2 NI as self-employed route.
PAYE employee of limited company can also be a route to use, depends on the specific circumstances. Self-employed is probably easier if there isn't already a limited company around.
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