Question
I have a limited company from which I hardly draw any salary or dividends. Would it be more tax efficient to pay for my and my wife's iSAs from the company rather than from our earned salary from another job (public servants)?.The limited company is for my private earnings. We are both higher rate tax payers.Answer
Nice idea, but unfortunately it's not allowed - ISAs can only accept contributions from individuals, not companies.
To get money out of a company it must be taken as income or a dividend, both are taxable. Dividends have the advantage in that they're not subject to National Insurance (NI), but HMRC tends to clamp down if it thinks you're paying an artificially low salary with high dividends to avoid NI. Dividends are also deemed to be paid net of basic rate tax, reflecting the fact they're paid out of taxed company profits.
You could pay money from your company directly into a pension for yourself (or your wife, provided she's a director/employee), this would be treated as a business expense hence avoid corporation tax on the contribution. However, bear in mind pensions are not very flexible, the money will be tied up until at least age 55 and must eventually be used to provide an income - you can't simply get the money back whenever you want it (unlike ISAs).
If you consider pension contributions, check you don't exceed your annual overall contribution limit of £50,000, this includes your civil service pension and any employer contributions. Also bear in mind the lifetime allowance, currently £1.5 million. If your pension pot is valued above this at retirement the excess will be taxed, currently at 55%.
Both the annual contribution limit and lifetime allowance are due to fall from April 2014, to £40,000 and £1.25 million respectively.
I have a limited company from which I hardly draw any salary or dividends. Would it be more tax efficient to pay for my and my wife's iSAs from the company rather than from our earned salary from another job (public servants)?.The limited company is for my private earnings. We are both higher rate tax payers.Answer
Nice idea, but unfortunately it's not allowed - ISAs can only accept contributions from individuals, not companies.
To get money out of a company it must be taken as income or a dividend, both are taxable. Dividends have the advantage in that they're not subject to National Insurance (NI), but HMRC tends to clamp down if it thinks you're paying an artificially low salary with high dividends to avoid NI. Dividends are also deemed to be paid net of basic rate tax, reflecting the fact they're paid out of taxed company profits.
You could pay money from your company directly into a pension for yourself (or your wife, provided she's a director/employee), this would be treated as a business expense hence avoid corporation tax on the contribution. However, bear in mind pensions are not very flexible, the money will be tied up until at least age 55 and must eventually be used to provide an income - you can't simply get the money back whenever you want it (unlike ISAs).
If you consider pension contributions, check you don't exceed your annual overall contribution limit of £50,000, this includes your civil service pension and any employer contributions. Also bear in mind the lifetime allowance, currently £1.5 million. If your pension pot is valued above this at retirement the excess will be taxed, currently at 55%.
Both the annual contribution limit and lifetime allowance are due to fall from April 2014, to £40,000 and £1.25 million respectively.
Read this Q and A at http://www.candidmoney.com/askjustin/785/how-to-get-money-out-of-company-tax-efficiently
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