What to do with ltd company 2009 profits?

[mct1]

Husband set up a limited company Jan 2009 after years as sole trader because we were told it would be more tax efficient. We are the two directors; no employees.

Say profits are €10,000, to pick a round sum. Our accountant was too busy to see us before last week, and omitted to tell us that the company pensions deadline was 31st Dec 2009. So now it seems we have only two options left:

1. Pay corporation tax of €1250 and leave the remainder in the company.
2. Increase our salaries and PAYE for 2009 by €10,000, of which €2,000 goes to revenue and €8,000 to us personally. (We realise the deadline has passed for topping up PAYE for 2009 - that's another thing he omitted to tell us in time! However, it is apparently still possible.)

The way we see it, option 2 is best because although it costs more in tax, the money then belongs to us personally rather than to the company. Our accountant tells us that option 2 would cost us €750. Neither of us can understand the other point of view and we seem to have an impasse.

Any advice / comments would be much appreciated. We don't want to change our accountant (again!).

 

[Gervan]

My brain is feeling particularly fuzzy today, but tax relief for 2009 can be claimed for pension contributions made by the taxpayer before 31/10/10. I don't know the size of your salaries, or your ages, but you may be able to increase your nominal salaries for 2009, then deduct the pension, leaving your P60 income unchanged.
There would be a small amount of extra income levy due.

If instead you decide to increase your directors' fees for 2009 you just file an amended P35; it is not too late.

 

[mercman]

Maybe the first thing you might consider is finding a firm of accountants that do not keep forgetting what they should and should not tell you.

 

[Joe_90]

Company pensions have to be paid during the year to be deductable for tax in that year.
If the €10,000 in directors fees as they are known do not put you into the higher tax band you will pay 20% Income Tax 3% PRSI 4% Health Levy and 2% Income Levy (Depending on salary already received). So €10,000 x 29% €2,900 and no corporation tax. If you pay these fees ie draw a cheque before the end of June you can submit a supplementary P35 which will not be subject to interest.
Another option is to pay the CT of 1250 and keep an eye on the profit in 2010, if you want to eliminate the 2010 profit with a pension and then an extra €10,000 pension payment the resulting loss in 2010 can be set against the profit in 2009 and the tax paid 2009 reclaimed.

 

[mct1]

Company pensions have to be paid during the year to be deductable for tax in that year.

Fine, so the accountant was right about that. Thanks.

If the €10,000 in directors fees as they are known do not put you into the higher tax band you will pay 20% Income Tax 3% PRSI 4% Health Levy and 2% Income Levy (Depending on salary already received). So €10,000 x 29% €2,900 and no corporation tax. If you pay these fees ie draw a cheque before the end of June you can submit a supplementary P35 which will not be subject to interest.

That's good to know. When you say "draw a cheque", do I assume that doesn't literally have to be done - just a payslip made out? We haven't been drawing our wages out of the company account recently as business has been slack due to the recession. The company owes us a few thousand.

Another option is to pay the CT of 1250 and keep an eye on the profit in 2010, if you want to eliminate the 2010 profit with a pension and then an extra €10,000 pension payment the resulting loss in 2010 can be set against the profit in 2009 and the tax paid 2009 reclaimed.

That's really useful information that I wish our accountant had been able to make clear to us. In fact any profit this year will be small so if we can generate a loss through pensions, we should be no worse off really than if we'd paid last year's profits into a pension.

I'll put these points to him and hopefully we can come to a mutual agreement.

Incidentally, despite his lapses, he's way better than our previous two accountants (the last, it turns out despite what he claimed, wasn't a proper accountant at all!)