Adding to the share capital of a Ltd. Co?

[ButtermilkJa]

Is it possible to simply move company money from profits into share capital? Is there any advantage/disadvantage to this? What are the tax implications?

For example, I am the director and owner of my own Ltd. Co. If I have €25k profit after year 1, can I move this into share capital and then pay myself dividends each year? If so, how would I go about releasing the money if I needed it in the future?

Or is this just a crazy idea. Am I better off just paying CT and leaving it in the bank?

I am aware that putting it into a pension is probably the most tax friendly way of taking money from a company but for various reasons I'm not ready to start a pension right now.

This is just a thought in my head right now and obviously I would consult my accountant before doing anything. I'm just not 100% up to speed on how the area of share capital is dealt with and wanted a heads-up really.

 

[ubiquitous]

Sorry, your questions don't seem to make much sense.

I can't think of any situation where it would be beneficial for a small owner-managed company to commit profits to an increase in share capital. If you do so, you cannot access these funds without going through a complicated & technical company secretarial procedure to reverse the increase.

I'm surprised that you are even considering dividends as a means of extracting profits from the company. Dividends are a very tax-inefficient option except in rare circumstances. Is the company not paying you a salary?

You do need to talk to your accountant - pretty urgently - unless you have a very clear understanding of these issues already, which doesn't seem likely from the questions you are now asking.

 

[ubiquitous]

posted in error

 

[ButtermilkJa]

ubiquitous, while I appreciate your 'reply', I added the last few lines of my original post for your eyes particularly. It seems you are always the one who likes jump straight in and have a go at us start-ups for not knowing our stuff.

If you read the post correctly you would understand that I am not 'intending' to do this, so your 'surprise' is completed unwarranted. Secondly, as I stated, I would go straight to my accountant if ever considering anything like this with my company. It was purely a heads-up on the pros and cons of the process. I thought that's what AAM is all about. Asking questions about stuff you're not sure of.

Sorry for the rant but your answers are getting so predictable these days.

 

[ButtermilkJa]

posted in error

Ok, now I feel bad

 

[ubiquitous]

Sorry for the rant but your answers are getting so predictable these days.

Okay I won't bother you again.

 

[Graham_07]

It's good that the company is performing well and it's now that good tax/financial advice becomes money well spent ( and tax dedictible too )

Ubiquitous would be correct in the matter of share capital. Doesn't really make sense to pay up additional shares in a single member co.

Dividends are not tax efficient as (a) they are not allowable as a CT deduction and (b) you end up paying tax at your marginal rate on them.

Maximising standard rate extraction of salary and pension or other benefits before hitting high rate should be considered. At least you have extracted the funds and the salary/pension are CT deductible.

Obviously any pension decision should be taken with appropriate advice from your advisor in that area.

 

[ubiquitous]

..

 

[ButtermilkJa]

It's good that the company is performing well and it's now that good tax/financial advice becomes money well spent ( and tax dedictible too )

I agree. I have engaged the services of a reputable accountant in the area and even though it is costing me more than I was paying before, I feel the level of service I am getting is worth the extra money. I have seen from my recent tax returns this year he has already saved me the fee he is charging. I would always speak to him about any matter of my finances. This query is really more of a heads-up than anything else.

Ubiquitous would be correct in the matter of share capital. Doesn't really make sense to pay up additional shares in a single member co.

Dividends are not tax efficient as you end up paying tax at your marginal rate on them.

Yes, his point makes sense. This is something I wasn't aware of before.

Maximising standard rate extraction of salary and pension or other benefits before hitting high rate should be considered. At least you have extracted the funds and the salary/pension are CT deductible.

Yes I am already claiming a salary of €34k and claiming all expenses I'm entitled to. In terms of a pension, I don't want to throw all the profits into a pension just yet in case I need the money for lean times in the months/years ahead. Also, the state of the economy and talk about falling pension funds has me doubting whether now is the time to start one at all? But I know what they say, the sooner the better... Maybe I'm being too cautious?

Obviously any pension decision should be taken with appropriate advice from your advisor in that area.

I had a sit-down with a financial advisor in my bank a few months back to go through the figures and options for pensions. I think I'll need a refresher on this however before I finally decide to start one up!

 

[Sherman]

I had a sit-down with a financial advisor in my bank a few months back to go through the figures and options for pensions. I think I'll need a refresher on this however before I finally decide to start one up!

As pointed out before, your bank won't give you impartial advice, and may in fact give you advice which may not correctly suit your circumstances. Better to talk to your accountant or an independent financial advisor.

 

[ButtermilkJa]

As pointed out before, your bank won't give you impartial advice, and may in fact give you advice which may not correctly suit your circumstances. Better to talk to your accountant or an independent financial advisor.

Yes, that's something I've seen mentioned here a lot. I hadn't got a clue about pensions when I went into the bank that time and they offered me a free consultation so I thought it would be no harm to get up to speed. Since then I've been doing a lot of my own research and also gathering information from the pension providers directly. But I also ran it by my accountant in the summer and he said he would talk me through the whole thing when I was ready to go.