Hi there, this is an easy on if you know and understand taxes, I do not and I have a migraine and I need an answer today to run the payroll.
I was an employee of a company; I now own it and am a director after completing my IVA.
As I was on an IVA, I had a low salary, I still have a low salary.
The business is going well now, our business model thrives in this economy and will for some time. I have also taken on a full-time employee now, who does the payroll and bookkeeping amongst other things. I want to focus on doing the following:
1) Growing savings tax efficiently and aggressively. I am 45 and have no savings, no assets, no pension (I Have paid enough NIC to get a state pension but that is all)
2) Ensuring my business does things legally and can demonstrate that.
I also own a business in the USA that is not paying me yet but can pay me up to $75K a year which is more than I need. I am the sole director/owner of both businesses. They are different and cannot be merged.
My goal is to live off that salary, invest the balance each year in Isa and a Junior ISA for my daughter, and put as much as I can into a pension tax efficiently. Originally I was thinking take a low salary and high dividends, totalling £40K and put £40K into a company pension each year, but I just tried that won’t work, you can only match your salary to a company pension, so I would need to take a higher salary to get that.
What I am unsure of is if
The returns on pensions are enough to justify the increase in tax if I increase my salary
If I can invest the salary as well (so I am tax efficiently putting as much away as possible – am I right in saying if I have a £40K Salary the company matches the payment at £40K so that’s £80K in the pension each year? If so,
What I want is advice tailored to me, so here is the questions I want answering:
1) Am I right saying that if I take a salary of £40K and pay all of it into the pension, the company must match to the same amount?
2) If so, is that the most tax efficient way of doing this?
3) Can I choose how the pension is invested like I do with my ISA (choosing the shares, trading myself)
4) Is the tax relief on doing this way good enough to make sense or am I better taking a low salary and high dividends and investing personally?
5) I am moving to Spain, and the US company can pay all my expenses as expenses (rent, living expenses, etc) So I believe this would not need to be declared as income as its expenses, and so should not effect my pension options. Am I correct?
6) That said, I would like either the US or the UK company (or a combination of both of them) to pay me a net of at least £35K a year so I can max the ISA allowance for my daughter and I
7) My credit rating is OK and getting better but not great – I have no debts, but the IVA did effect credit rating. So, some of the traditional investments like property I do not think would be so good for me, but down the line perhaps it would make sense, and the US company would be the likely vehicle for doing that.
8) Year end is Sept 30th, today is the last day to run the payroll this month.
9) Taking all the above intro consideration, what would you suggest?
What I am looking for is a 1 or 2 paragraph answer with the working out explained so I can see the £ figures for what effects it has for me overall, considering all the costs including:
• NIC contributions for me and for the company
• Income tax
• Company Tax
• Any other tax implications I had not thought of
This is an easy on if you know and understand taxes, I do not and I have a migraine and I need an answer today to run the payroll.
I find that often freelancers auto bid on projects and don’t actually read them first, so to make sure you have read and understood this, I will only entertain your bid if your advice starts with the word “hollowed” and includes a link or a description of your credentials, are you an accountant, an FSA, a director who did what I am doing, etc…)
Thanks, and happy bidding!