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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Hello, I have retired at 65 and have a state pension and

Resolved Question:

Hello,

I have retired at 65 and have a state pension and a private pension worth 16k/year, for which I'm taxed via PAYE.
I've also started a one-man limited business working from home, for which I have to pay corporation tax.
Could you please advise on the most efficient way of tapping into my company's profit?

Many thanks,
George
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.

Hi.

If your income is £16,000 per annum and you were born after 5 April 1948, you are entitled to a personal allowance of £10,000 which means that your net taxable income is £6,000. You can find details of the personal allowances here.

The basic rate tax band covers the first £31,865 of taxable income so you will be using £6,000 of that against your net taxable pension income leaving £25,865 unused.

If you draw salary from your company, you will pay income tax on it. You won't pay national insurance contributions. According to the HMRC web page here, employer's NIC would still be due on earnings above £153 per week for 2014/15. Salary costs would save your company 20% in corporation tax assuming its profits were £300,000 or less per annum. Of course, if you drew a salary, you might consider paying pension contributions of up to 100% of your earnings subject to an annual limit of £50,000 but the basic rate tax relief would go into the pension scheme. Contributions could be paid by the company which would save it 20% in corporation tax.

If you take income from the company in the form of dividends ,these will be treated as paid net of a notional 10% tax credit which itself is deemed to satisfy the basic rate tax liability of the recipient shareholder. Further tax will only be due if your total income takes you into the 40% tax band. You could take a cash dividend, profits allowing, of up to £23,278.50 (£25,865 gross) in 2014/15 and pay no further tax on it as you will have only used up your 20% tax band with your pensions and dividend. Take a look here for information on dividends and tax. Dividends are not a tax deductible expense for the paying company.

I hope this helps but let me know if you have any further questions.

Customer: replied 3 years ago.

Hello.


Thanks for your prompt reply.


 


Before incorporating the company I operated for 3 years as a sole-trader, and bought some office equipment (two laptops, one printer, two mobile phones) for which I claimed tax relief.


 


I'll close now the sole-trader business, but I'll be using the equipment in the limited company. What is the best way to formalise this?


 


Many thanks,


George

Expert:  TonyTax replied 3 years ago.
Has tax relief been claimed in the form of capital allowances for the full cost of the office equipment or is there some unused written down value?
Customer: replied 3 years ago.

Capital allowances for the full cost in 2012-2013 tax year.

Expert:  TonyTax replied 3 years ago.

You cannot claim capital allowances through AIA in the limited company for the equipment as you and the company are connected.

As you appear to have claimed Annual Investment Allowance for the cost of the equipment, thereby writing it all off, you need to remove it at it's value from the sole trader business which will result in a clawback of AIA in the final year as a sole trader.

 

Introduce the equipment into the limited company at its value which becomes the company's cost for capital allowances purposes. As the company is effectively buying the equipment from you, you can credit your directors' loan account with the "cost".

Customer: replied 3 years ago.

Remove it at its "bought value" or a decayed "current value"? If so where can I find the acceptable decayed rates?


Finally, what is the exact procedure for introducing the equipment into the limited company?


 


Many thanks,


George


 

Expert:  TonyTax replied 3 years ago.
You would normally use the current value. I don't know of any site that can give you a definitive" decayed value". My clients estimate what they can sell an item for in these circumstances.

I'm not a bookkeeper so I cannot help with those entries if that is what you are referring to. Your company is a one man operation so HMRC will not ask to see official documentation showing that the company owns the equipment. A simple note in your diary or business records to the effect that the equipment has been "sold" to the limited company by you for £X" will suffice.
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