Welcome to the DAD.Info forum: Important Information – open to read:
Our forum aims to provide support and guidance where it can, however we may not always have the answer. The forum is not moderated 24 hours a day, so If you – or someone you know – are being harmed or in immediate danger of being harmed, call the police on 999.
Alternatively, if you are in crisis, please call Samaritans on 116 123.
If you are worried about you or someone you know is at risk of harm, please click here: How we can help
I work in tech, and there were mass layoffs last year. I somehow quickly got a very lucrative 18month contract role, so set up my ltd. As a note, the most tax efficient way of taking pay out of a ltd is c.£12k of salary and the rest in dividends - this gives the minimum NI contributions for a state pension.
I knew I was being laid off, so I reduced my pension contributions, but still received a decent salary and redundancy payout. This meant I was fully paid up in NI contributions for the tax year so no need to draw a salary from my ltd; my redundancy payout meant I've not needed to touch my dividends either - if I did, I would have been pushed up a tax bracket. I received a zero assessment as I've had no salary or dividends since I was laid off - instead, my ltd has been getting fat.
We are now in a new tax year, so I am going to start to take the £12k salary. I'm planning on drawing down dividends this year as well, and max'ing out my pension contributions. The timings of my pension contributions could be viewed as diversion as I am doing this as a large lump sum early on to maximise time in market, but against a 2 year view, it is 30% of my total earnings (I'm in my early 50's, so I believe this is reasonable).
I'm fully expecting to be hit with a variation request by my ex shortly, so I want to put things in order as best I can in advance. Whilst ultimately the system is designed to balance out in the end, my being efficient with tax years has meant no cms for her for 6 months.
- My tax return for this year just gone will only show my PAYE employment (once I complete it). I suspect I should get this filed early on so its available on their system.
- My company tax year ends late summer, so its 2025 until I need to file a return
- Any dividends I take this year won't show on my self assessment until latest Jan 2026
- I will probably cease trading in early 2025 and return to PAYE as the market should have recovered by then
Questions:
1. Will direct pension contributions from my ltd show up in a variation?
2. I have three options for timing my dividends:
i. Steady monthly
ii. Lump sum at the end of the company financial year, with some retained profit for rainy days
iii. Lump sum at the end of the personal tax year, again with some retained profit
Can I justify any / all of these different approaches? Will any of this make a difference on a variation request, given that they all fall within the current tax year?
3. There is a fine line between being tax efficient and diverting income. What do I need to do to be / seen to be on the right side of this line?
4. Am I right in saying that if I take any residual dividends when I eventually close the company, they can't base CMS off those as that is no longer an income stream available to me going forwards?
hi,
I previously had a LTD while contracting. at annual review time I rang CMS to declare dividends. In covid times I became jobless. they told me to close down the LTD to prove I was not earning from it, so I closed it. then in next year review they did not take it into account as I was doing self employed work, so they just look at my self assessments with HMRC.
It would be wise to declare dividends of your company is still active. I don't think your pension contributions are excessive. not sure how CMS would view it. generally CMS will not kick up a fuss, unless your ex contacts them to seek variations about your income.
Thanks
I'm expecting her to kick up a big fuss about my £0 income / £0 dividend in the very near future - hence my question. With a decent amount in my ltd bank account, I doubt it would currently stand up to scrutiny - assuming they have the powers to look there. It is my first year of trading, and I haven't got to my first year end yet - whilst this sounds ok in principle, I'm not sure how sound an argument this is to the CMS with a year's salary in the ltd bank.
I suppose the question is if I plan to take a lump sum of dividends at the end of the company financial year, with a view of informing CMS as I take them - will this be ok, or would I fall foul if she starts to kick up a fuss before then; in which case, do I take an interim dividend to demonstrate intent?
@bluezebra if your worried you can contact CMS about this. they will probably wait for your next annual review.
Welcome to the DAD.info forum.
We don’t like to set ‘rules’, but to make sure that you and the other dads are kept safe, we have some requests. When engaging with the forum, please be aware of the following:
- The forum is not moderated 24 hours per day.
- Many of the moderators do so on a voluntary basis. Whilst they may be able to provide some guidance, advice or support, they may not be able to deal with specifics.
- We are not an emergency crisis service so if you or someone else is in immediate danger, please call emergency services.
- If you are concerned about the safety of a child, please click here to find the support you can get for them (link to new page)
- If you are in crisis, please call Samaritans on 116 123. They are open 24 hours a day, 7 days per week.
We hope you find this forum a supportive environment and thank you for joining us.