Cash surplus in Ltd company.

[Armstrongracer]

I'm a Ltd company contractor with myself as director and no other employees, Ive just taken on a permanent role and want to wind down my Ltd Co but need to minimise my liabilities and maximise my earnings from contracting because I'm taking a big drop in salary and things will be tight going forward. This is the state of play

• My vat is up to day with revenue but I was stupidly busy (working away) in 2024 so lived off personal savings and havent yet paid myself any salary from the company in 2024.
• Have a sizeable surplus in the company account (approx 6 months salary) because I was always prudent as a contractor and paid myself less than I was earning in case I had a gap between contracts and would still need to pay myself even though there would be no income coming in.
• This prudence could well bite me big time if I just pay everyting out thats left in the company account as salary, as all of this surplus will be taxed at the upper income tax rate.

Whats the most tax efficient way to deal with this, I need to be smart here as my salary drop is 25-30% and I,m a single parent with kids about to hit college years. I've also just hit 65 and wonder if there are any additional tax advantages I can leverage.

 

[cally1990]

Have you spoken to your accountant

Id also recommend speaking to a financial advisor (different qualification and skillset to an accountant) so you can give different advice

Check out this relief and does with your accountant to see do you meet the conditions and closing the business, selling the assets and reducing CGT on the gain

Revised Entrepreneur Relief

A description as to what the Revised Entrepreneur Relief is

www.revenue.ie

 

[Brendan Burgess]

This prudence could well bite me big time if I just pay everyting out thats left in the company account as salary, as all of this surplus will be taxed at the upper income tax rate.

Did you pay yourself enough to use up your tax credits and 20% tax bands?

Assuming you did, you are being taxed just like everyone else.

Put a lump into your pension.

Do get tax advice, but if your accountant allowed you to leave money in the company and pay CT on it while not using your tax credits, then I would go to another tax advisor.

Brendan

 

[T McGibney]

Do get tax advice, but if your accountant allowed you to leave money in the company and pay CT on it while not using your tax credits, then I would go to another tax advisor.

That's simply not an accountant's job, Brendan.

 

[cally1990]

That's simply not an accountant's job, Brendan.

I think Brendan is saying it would be remiss of that accountant to not advise the client on building up profit without drawing any salary because the allowances are going unutilised,

but we don't know what conversations were had between OP and his accountant while the profit was building over time.

*I suspect OP has been drawing a salary but had excess funds he didn't need as salary so left profit in the company for the 6 month emergency funds to cover himself if the contract ended

 

[Savvy]

Did you pay yourself enough to use up your tax credits and 20% tax bands?

Is this the advice now, to only contribute to a pension where it saves paying at higher tax rate?

If I was in the position to reduce salary into the lower tax rate and contribute additional to pension or take it out taxed at 28%(20%+prsi(4%)+USC(4%)), I'm not sure I could do better by taking it out.

 

[Brendan Burgess]

Hi Savvy

I have always argued that all profits should be taken out either via pension contributions or salary as leaving profits in the company means it will be taxed twice. But I know that some people disagree with that or can't get their head around it.

But, the absolute minimum he should have been taking out would be the amount required to use up the tax credits and 20% tax bands.

Brendan

 

[Savvy]

I have always argued that all profits should be taken out either via pension contributions or salary as leaving profits in the company means it will be taxed twice.

I agree 100% with this. You're paying almost 20% tax to build up a cash pile which is slowly eaten away by inflation anyway and pay for liquidation and another 10% to get the cash out(Entrepreneur relief), albeit you may get 0%(with Retirement relief).

I think availing of Retirement Relief to just get whatever cash is built up in final year before retiring may be a sensible option
It will depend on cash/liquidation costs at that time before making a final decision though.

 

[Gordon Gekko]

Based on the limited facts, it appears that Retirement Relief may apply, in which case the cash can be paid out tax-free as part of a liquidation. I’d get expert tax advice.

I’d also challenge the view that it’s not an accountant’s job to point out potential opportunities when they’re obvious.

 

[T McGibney]

I’d also challenge the view that it’s not an accountant’s job to point out potential opportunities when they’re obvious.

That view hasn't been expressed here.

 

[Gordon Gekko]

That view hasn't been expressed here.

You literally said that it’s not an accountant’s job to point out the opportunity to use one’s credits etc to take some money from one’s company. Or words to that effect.

 

[T McGibney]

You literally said that it’s not an accountant’s job to point out the opportunity to use one’s credits etc to take some money from one’s company. Or words to that effect.

I most certainly didn't.

Brendan suggested that an accountant shouldn't have "allowed" the OP, a company director, make an elementary mistake of not paying himself a salary for 9 months so far this year.

I merely pointed out that it's not the accountant's role to decide how much the director should be paid each month.

That's up to the director to decide.

(The OP never had even mentioned whether they had an accountant.)

Please don't misquote me again in such a fashion.

 

[MelF]

I agree 100% with this. You're paying almost 20% tax to build up a cash pile which is slowly eaten away by inflation anyway and pay for liquidation and another 10% to get the cash out(Entrepreneur relief), albeit you may get 0%(with Retirement relief).

I think availing of Retirement Relief to just get whatever cash is built up in final year before retiring may be a sensible option
It will depend on cash/liquidation costs at that time before making a final decision though.

I was under the impression that cash buildup is now not a qualifying asset for retirement relief?

 

[T McGibney]

I was under the impression that cash buildup is now not a qualifying asset for retirement relief?

"Excess working capital" is.

The OPs rationale for keeping a cash reserve in place to cover periods where there is no work coming in would suggest it's not excess working capital (although Revenue might possibly think differently).

 

[MelF]

"Excess working capital" is.

The OPs rationale for keeping a cash reserve in place to cover periods where there is no work coming in would suggest it's not excess working capital (although Revenue might possibly think differently).

Interesting thank you. What typically falls under the ‘excess’ definition then, cash that hadn’t sat there for years or somesuch?

 

[T McGibney]

Interesting thank you. What typically falls under the ‘excess’ definition then, cash that hadn’t sat there for years or somesuch?

Yes, that would be my understanding. Sometimes it depends on the whims of the Revenue officials though but the OPs logic seems solid enough to at least make a good case for the sum in question to be treated as normal working capital.

 

[Gordon Gekko]

I most certainly didn't.

Brendan suggested that an accountant shouldn't have "allowed" the OP, a company director, make an elementary mistake of not paying himself a salary for 9 months so far this year.

I merely pointed out that it's not the accountant's role to decide how much the director should be paid each month.

That's up to the director to decide.

(The OP never had even mentioned whether they had an accountant.)

Please don't misquote me again in such a fashion.

Ah, get off the stage…you must be in the market for the nonsensical semantics award of the week!

If someone says “a good adviser wouldn’t allow a client to do X” it’s eejitry and playground stuff to think that “it’s not the adviser’s decision” is a reasonable or cogent argument.

 

[T McGibney]

Ah, get off the stage…you must be in the market for the nonsensical semantics award of the week!

If someone says “a good adviser wouldn’t allow a client to do X” it’s eejitry and playground stuff to think that “it’s not the adviser’s decision” is a reasonable or cogent argument.

It's not semantics.

A business person is responsible for their own successes and their own mistakes.

If we collectively assume that there must always be an accountant somewhere who can be blamed for every mistake, it's no wonder that many people undervalue accountancy services and take them for granted.

 

[Gordon Gekko]

It's not semantics.

A business person is responsible for their own successes and their own mistakes.

If we collectively assume that there must always be an accountant somewhere who can be blamed for every mistake, it's no wonder that many people undervalue accountancy services and take them for granted.

“A good accountant/solicitor/financial adviser wouldn’t allow a client to do X” is perfectly normal and accepted language. Any reasonable person knows exactly what it means.

And I disagree completely. If that person has an accountant and that person is scoring obvious tax ‘own goals’, the accountant is in all likelihood a delinquent fool failing in his or her fiduciary duty to the client.

 

[T McGibney]

Abd I disagree completely. If that person has an accountant and that person is scoring obvious tax ‘own goals’, the accountant is in all likelihood a delinquent fool failing in his or her fiduciary duty to the client.

There is no mention of any accountant though, let alone of a delinquent fool.