Paying Dividends from retained Profits

[skyjumper007]

hi everyone,

my scenario - had a Ltd Company which I stopped working through - end of November 2011 . the plan was to close it as I was moving abroad. Didn't close it as I wanted to see how I get on with my job overseas and now it's been a good 6 months and I am happy in the middle east, planning to take my family there this September.

even thought I haven't worked through my Ltd Company since Nov 2011 - I did work a few weeks in Jan 2012 and again in June 2012 - just a couple of assignments and brought in about £2000 in Jan 2012 and is hoping to bring in another £2.5-3k this June as I did some work when I was back here in UK through the company.

I have around 20,000 retained profit from the last 3 financial years - after paying all the tax including the CT. I don't want to wind up the company yet, as I may do some odd work when I visit UK in the near future and my accountant is very good and flexible and we have come to an agreement that they would charge me depending on when I am here doing some work.

They also suggested that I could take some money out of the Company as dividends for this year - 2012-13 as I haven't had any taxable income in the UK - so most of the 20k could be taken as dividend - I am a bit hesitant as I am not sure if this is right?

hope someone here will be able to throw some light and I welcome any advice and suggestions regarding the most tax efficient way for withdrawal of the money from the Ltd Account. I am not keen to close the company yet!!!

thanks in advance.

 

[Scalloway]

As long as there are retained profits and you are happy that they will not be swallowed up by a current year's loss you can take a dividend. Just make sure the correct paperwork is in place.

 

[Financial-Modeller]

As you and your accountant have said, you are free to withdraw retained profits as a dividend.

If you can withdraw it without further tax liability do so, however, if there will be a tax liability, perhaps consider what the best use of the cash is. If you need it, withdraw it and use the net proceeds, if not, perhaps invest it within the company until you do need it.

 

[skyjumper007]

thanks for the replies

Could you please explain this a bit - "if not, perhaps invest it within the company until you do need it"

U mean making some kind of fixed term deposits with the operating Bank or something else ?

thanks again

 

[Financial-Modeller]

Broadly speaking, the company can treat cash in the same way as you can as an individual, so the company can leave cash in a savings account, or can open an investment account in its own right to invest in shares, funds, corporate bonds, etc.

Having re-read your post, it may not be so relevant to you if you can take the dividends without incurring income tax liability, but it can sometimes be better to leave spare cash in a company to invest pre-tax, rather than taking it out as a dividend, paying income tax and investing the net amount after tax in the same type of investment.

In a way, you can treat it like a pension fund, without the restrictions on withdrawing funds that a pension introduces.

In such circumstances you should obviously consult your accountant &/or financial advisor of course.

I hope this helps.