Very Basic Questions on Best Way to Extract Money from Ltd Company

optimusgrime

Hi guys,

Please forgive the simplicity of my questions here, I've not been able to find out too much about it with a bit of research thus far.

Let's say I own a Ltd company, I'm the sole director and own 100%

My company makes €100,000 profit in the first year, after I've paid all the costs/expenses/VAT etc that's what I have left in the bank. I have no employees and have paid myself no salary.

What's the best/most tax efficient way of me getting this money out of the company and into my bank account?

(1) Is corporation tax paid before or after salaries? Ie must the company pay corporation tax on the €100,000 before the company pays me a salary?

(2) Can the company just pay me a salary of €100,000? I realise that with Employer PRSI, and higher band income tax I'm not going to see all that much of the €100,000 but is that how it's done?

(3) Is there a better way of extracting money from the company?

Would really appreciate any advice on this!

Thanks

srsly78

I wish I knew all the answers to that myself. I can help with a few minor points tho:

Employer's PRSI: Does not apply to directors. Directors pay class S prsi on their salary, there is no extra prsi as with class A workers. Directors have a smaller tax free allowance tho

Corp tax: If you satisfy the conditions your startup company will be exempt from corp tax. Conditions are stuff like: must create jobs that did not exist previously (ie you cant just make a company to continue your old job). Also must be in a qualifying sector (IT is one). Note there is a limit on the exemption, e125k profit I think. Corp tax is paid on PROFITS - which answers your question1.

Pensions: A controversial topic, but there is a lot of tax relief available. Note govt are now robbing pension funds tho.

DubTony

You should be drawing a salary on a weekly or monthly basis, and so reducing the company profit, but I think that's irrelevant here.

The company can pay you all the profit as a salary / bonus and you'll be required to pay tax and PRSI on it. As srsly said, the company has no PRSI obligation in the case of directors. As a director owning more that 15% of the company, you'll have ZERO tax credits so you'll pay the full tax rates on the 100K.

I know nothing about pensions etc.

EIREHotspur

This is a great thread and one which I am sure would apply to most people who are setting up in this climate abeit on different scales to this.

Answers to these kinds of questions should be extracted and added to a list on a sticky thread above.

thecommander

You can take tax free expenses out of a Ltd company, plus you can make contributions to an executive pension. After that it's taking the money as a wage and paying income tax on it.

Talk to your accountant about it.

NumbrCrunchr

What's the best/most tax efficient way of me getting this money out of the company and into my bank account?

(1) Is corporation tax paid before or after salaries? Ie must the company pay corporation tax on the €100,000 before the company pays me a salary?

(2) Can the company just pay me a salary of €100,000? I realise that with Employer PRSI, and higher band income tax I'm not going to see all that much of the €100,000 but is that how it's done?

(3) Is there a better way of extracting money from the company?

Here are my answers below:
1. Corporation tax is paid on adjusted profit, so after salaries
2. Company can pay you the full salary. No Employers PRSI but you miss out on half of your tax credits (PAYE tax credit worth €1530)
3. Travel and Subsistence is a very efficient route as the company can pay you net of tax. Rates and more information on this is on the revenue website. Pensions can be paid directly from the company also but you cannot get your hands on this money until retirement age.

robinph

Not certain on the Irish rules, but can you not pay yourself share dividends at the end of year at a lesser rate of tax than the regular PAYE level? The company already having paid corporation tax on those profits. At least that is a way of extracting the cash at a better rate that is possible in the UK.

nompere

Paying a dividend is a terrific way of creating a tax liability out of nothing.

The dividend does not reduce the profits liable to corporation tax - so that liability is unaltered - and the dividend is liable to the same rates of income tax and levies as a salary.

Truly a very poor idea.

robinph

nompere wrote: »

Paying a dividend is a terrific way of creating a tax liability out of nothing.

The dividend does not reduce the profits liable to corporation tax - so that liability is unaltered - and the dividend is liable to the same rates of income tax and levies as a salary.

Truly a very poor idea.

Must be something different in the UK then.

macl

Few recommendations from me -

- Draw some sort of a salary for yourself even if small. Corpo tax is calculated after salary

- If you have a spouse or a partner not working, pay them a salary and pay the tax on this at the lower rate.

- Investigate car pools: http://www.revenue.ie/en/tax/it/leaflets/benefit-in-kind/private-use-cars.html#section4 (there are some interesting conditions to this which you might find useful)

- Claim for mileage (tax free expenses)

- Claim for expenses: http://www.revenue.ie/en/tax/it/employee-expenses.html

- Are any trips abroad claimable as work related? Could you prove it if asked

- Pension - great time to be buying shares in various stocks. Recommend Rabbo for low % rates. Just note you cannot touch this money. Speak to a QFA to see how you could leverage your pension to obtain real time money like a loan or a pension mortgage (if they exist any longer)

Have some other ones which some may consider a bit close to the wind so will omit these. The above should help you put away some decent cash for yourself...and congrats on having 100k to deal with. Its a good problem to have.

srsly78

robinph wrote: »

Must be something different in the UK then.

Yes, this is the major difference with LTD in the UK.

maxer68

did you put any investment into the company at the start? - If so, treat this as a loan and draw down from it. Otherwise theres no real way except drawing as salary.

Loans to directors have small ceiling and tight rules, so that out.

thecommander

maxer68 wrote: »

Otherwise theres no real way except drawing as salary.

AND the ways outlined above.

maxer68

thecommander wrote: »

AND the ways outlined above.

there don't seem to be any others outlined as OP say all expenses have been paid out. - Dividend / salary will, be taxed almost identically, so no benefit either way there.

In soe ways, I'd love to see another way, but in other ways its good to see how tight it has become to evade taxes.

The OP could look at additional expenses - health insurance, working from home allowances, but they're quite small.

thecommander

maxer68 wrote: »

there don't seem to be any others outlined as OP say all expenses have been paid out.l.

I would say he means company expenses (light/heat) rather than personal travel expenses.

macl

thecommander wrote: »

I would say he means company expenses (light/heat) rather than personal travel expenses.

**snip snip**

Health insurance is BIK-d

Homer

macl wrote: »

Few recommendations from me -

- If you have a spouse or a partner not working, pay them a salary and pay the tax on this at the lower rate.

Even if they didn't actually work for the company?? You don't do consultancy for the government by any chance do you?!

srsly78

macl wrote: »

Afaik you can claim 3 euro / day for working from home.

Health insurance is BIK-d

Please give source for this e3/day thing (ie link to revenue website). First I have ever heard of it.

And as for the whole "paying spouse/family" thing, the revenue are cracking down on this kind of shenanigans. Tax is often a grey area, but if you take the piss you will get nailed.

dbran

srsly78 wrote: »

Please give source for this e3/day thing (ie link to revenue website). First I have ever heard of it.

And as for the whole "paying spouse/family" thing, the revenue are cracking down on this kind of shenanigans. Tax is often a grey area, but if you take the piss you will get nailed.

There is nothing wrong with paying your wife/family members for working in your business and its not up to the revenue to decide how you organise your tax credits and lower rate tax bands. After all if they also work elsewhere they will be taxed at the top rate with no tax credits so that is the trade off.

What you may need to be careful of though is that you are paying the correct rate of PRSI on their salary. If you pay them the S1 rate then you need to get approval from SW scope section. Otherwise they pay the A stamp.

Kind Regards

dbran

macl

srsly78 wrote: »

Please give source for this e3/day thing (ie link to revenue website). First I have ever heard of it.

And as for the whole "paying spouse/family" thing, the revenue are cracking down on this kind of shenanigans. Tax is often a grey area, but if you take the piss you will get nailed.

The revenue are not going to start cracking down on this. Its perfectly normal for companies to have siblings and partners working side by side. As long as the relevant tax is being paid they would have a very hard time showing that there is anything the problem. In any case: If I decide to pay my spouse 30k / year for hoovering the office once a month, then that's my choice (on the face of it, a stupid non commercially viable salary but my choice). As long as I pay them the relevant USC/PAYE then there's nothing they can say.

I will conceed to not having a link for the 3 euro / day thing. It was something my accountant suggest I claim for about 2-3 years ago while I was working from home. Its possible that it's no longer relevant.

srsly78

Of course that's fine. What I meant was the case where it's taken a bit too far -> paying all cousins+second cousins a salary for token work, topping them up to the marginal limit, then obviously getting it back in cash from them. It might be legal, but will certainly result in you "appearing on the radar screen".

edit: the cash bit is not legal ofc

macl

srsly78 wrote: »

Of course that's fine. What I meant was the case where it's taken a bit too far -> paying all cousins+second cousins a salary for token work, topping them up to the marginal limit, then obviously getting it back in cash from them.

Agreed - taking the micky on anything is probably going to get you in hot water. Bearing in mind this is really only suitable to:

- People you trust
- People who aren't working and who aren't on social welfare (i.e have tax credits to spare)

optimusgrime

Hi guys,

Just wanted to say thanks very much for all the input, it's much appreciated.

So it looks like the suitable options are:

(1) Take tax free expenses out of the company

(2) Make contributions to an executive pension.

I looked online and it seems you can contribute a % based on age

Your age now % of your earnings
Under 30 15%
30 to 39 20%
40 to 49 25%
50 to 54 30%
55 to 59 35%
60 and over 40%

Just on this, is there an age limit on when you have to retire? For instance I'm 30 now, if I retired at 40 could I theoretically get access to this money then?

Can you buy shares in companies as a pension directly or does it have to be a specific pension fund?

(3) Taking the money as a wage and paying income tax on it.
I know it would make more sense to pay a montly wage but if I have not done this at the end of the year can the company just pay me €100,000 at once and pay income tax on this?

Most of the other options would not apply, paying my partner a wage would not work (at the moment anyway) and paying relatives that are not really working for me seems a bit dishonest/liable to get me in trouble.

As a matter of interest if I were to keep all the money in the company for a few years paying CT on it and then got bought out what would happen then?

If whoever buys the business wants to pay me €1m for it and the business has €1 in the bank what happens? Do they pay me €2m or do they want me to take out the money first?

Is there a more efficient way to withdraw the money from the business when selling it and any advantage to leaving money in it in this regard?

Thanks again for all the help:)

macl

optimusgrime wrote: »

Just on this, is there an age limit on when you have to retire? For instance I'm 30 now, if I retired at 40 could I theoretically get access to this money then?

No. Retirement age is whatever the gov set it at 65 or whatever.

optimusgrime wrote: »

(3) Taking the money as a wage and paying income tax on it.
I know it would make more sense to pay a montly wage but if I have not done this at the end of the year can the company just pay me €100,000 at once and pay income tax on this?

Yes, treat it as a bonus payment, still taxable at the same rates though.

optimusgrime wrote: »

As a matter of interest if I were to keep all the money in the company for a few years paying CT on it and then got bought out what would happen then?

You would pay your CT and then CGT on the sale of the company where the value of the company would be bumped up because of the retained cash balance. Essentially, you'd be double taxed.

optimusgrime wrote: »

If whoever buys the business wants to pay me €1m for it and the business has €1 in the bank what happens? Do they pay me €2m or do they want me to take out the money first?

That depends on whether the acquiring company needs the cash reserve.

optimusgrime wrote: »

Is there a more efficient way to withdraw the money from the business when selling it and any advantage to leaving money in it in this regard?

Get yourself to an accountant for proper advice on this. If you're dealing with more than 6 figures anywhere throughout the year its important everything is done above board and legal.

srsly78

Lots of useful info here: http://www.citizensinformation.ie/en/money_and_tax/personal_finance/pensions/personal_pensions.html

Most of us only get to retire at 65, but some professions like guards/sportspeople can retire earlier :mad:

maxer68

You can retire whenever you like, but state pension will only come into effect when you're 66 (rising over next few years)

On a private pension, I think you need to be 60 to take up tax free benefits.

Overall - I'd talk to a tax adviser - here you will snippets of good and bad info whereas the few quid an accountant will charge you could save you a few grand.

Here's someone I've used in the past to whittle a tax bill down http://www.irishtaxrebates.ie/ and very reasonable rates.

Kinetic^

maxer68 wrote: »

Overall - I'd talk to a tax adviser - here you will snippets of good and bad info whereas the few quid an accountant will charge you could save you a few grand.

+1 Speak with your accountant/tax/financial adviser.

MyAmber.net

The best way to get the money is:

1. Set up a company B in (British Virgin Islands/Cyprus/Malta/Delaware)
2. Sell 100% shares of your LTD company to company B
3. Take dividents or salaries or whatever has lower tax from company B

That's not something Revenue will be happy about, but you would be surprised of how many Irish companies did it (€4 per any LTD company info on cro.ie)

maxer68

And another option,

If you already have a partner / wife - get her some art lessons, then get her to apply for artists tax exemption.

She paints a few pictures / murals etc etc and your company buys them to form part of the company's "art Collection".

Or add book publishing to the company's list of projects - get her to write a book, pay a decent upfront fee and then decided not to publish the book.


If you don't have a partner, start hanging about the national gallery

macl

maxer68 wrote: »

Or add book publishing to the company's list of projects - get her to write a book, pay a decent upfront fee and then decided not to publish the book.

AFAIK the artists exemption has recently been reduced right down. I know someone who got it recently and they had to jump through major hoops to get it. Involved meeting 3-4 of the top revenue brass.

From your example above, without the artists exemption, there is still a liability for the 'upfront fee'. I think those sort of things you'll only get off with once and even then, you're drawing attention to yourself where other things will be checked.

srsly78

MyAmber.net wrote: »

The best way to get the money is:

1. Set up a company B in (British Virgin Islands/Cyprus/Malta/Delaware)
2. Sell 100% shares of your LTD company to company B
3. Take dividents or salaries or whatever has lower tax from company B

That's not something Revenue will be happy about, but you would be surprised of how many Irish companies did it (€4 per any LTD company info on cro.ie)

Ehh if you are tax resident in Ireland you are gonna pay Irish tax on that income anyway. If you are tax resident abroad then you don't care about Irish tax anyway :pac:

Love the artist tax dodge :P