Getting money from the business

D

dingdong

Registered User
Messages
85
Hi

My wife and I are in business together and director of ltd company, and we are looking to move house and need more income or larger deposit to get house

We currently take a salary of 35,000 each. At present we have good amount of cash in business. So option would be to either:
a ) Take salary of 70,000 each per year
b) Or take 150,000 net dividend(after tax) from the business.

Which is the most tax efficent method. Anyone know much 150,000 dividend would cost in tax
 
There are effectively four ways of extracting funds from a company:
Salary
Dividends
Loan
Liquidation/Sale of shares

If a salary is drawn, PAYE/PRSI must be operated at source and the director will be liable to tax under Schedule E on same. The company would normally get a CT deduction for the payment of this salary. Where a person is stepping down from his/her role within the company, termination payments are tax-efficient from both the person’s and the company’s perspective.
Where a shareholder receives dividends, he/she is liable to tax under on the gross amount of the dividend, with a credit for the Dividend Withholding Tax (DWT) deducted at source.
The company is not entitled to a CT deduction for the payment of the dividend and must pay DWT deducted to the Revenue on the 14th day of the month following the payment of the dividend.

For a director who is a shareholder of the trading company, the payment of a salary is generally more tax efficient than the payment of a dividend due to the CT deduction.

When considering a loan as a method of extracting funds, it is important to note that a loan from a company must be repaid at some stage and also can breach company law regulations, so this should generally be avoided.
If an interest-free loan is taken from the company, the company must deduct PAYE/PRSI on this deemed benefit-in-kind, i.e. loan x 13%.
If the company is a close company, it must remit Income Tax on the loan at a rate of 20/80.This Income Tax is refunded as the loan is repaid.

The liquidation or sale of shares of a company would be liable to CGT 25%. However, as opposed to the other cash extraction options, this would be seen as a once-off extraction.

 
Have you thought about liquidating the company by way of an members voluntary, this would mean that any cash left over would be taxed at CGT rates 25%. You can transfer all of the assets of the company to a new entity.

Not sure this is a cost effective solution for the money you mention!
 
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