Accounting for salary paid in years after being paid?

Accounting
1

I am soon stopping work as an independent business consultant but there’s still a fair amount of money in the limited company bank account.

Due to not wanting to draw income above the basic rate tax band, I want to pay salary from the Ltd Co over the few couple of years to supplement my pension. How do I account for this in the company accounts please? I don’t understand how profits that have had corporate tax paid are then paid as salary and subject to income tax. I really don’t understand how it works.

I am soon to be retired and at my age, not subject to national insurance contributions. Thanks.

2

Best get paid pro advice, it could be the case of Dividends or even liquidation of the company depending level of reserves in company, if you looking safe exit

3

Thanks for a very quick answer. On the assumption I am neither going to pay dividends nor liquidate the company but I am going to pay maybe 6 to 8 thousand a year in salary for a few years until the money has gone, how do I account for it? There’s not enough money to justify members voluntary liquidation and the extra expense of a liquidator being involved. The money has already been taxed as profit and will be taxed again as paid income?

4

that will be Dividends then NOT salary

5

OK thanks. That’s helpful. It appears I can’t do what I wanted and just pay a low salary until the money runs out. Thanks again.

6

I think you can do what you are suggesting, but it is dangerous for anyone to advise this as we don’t have full knowledge of your financial situation, but…

IF your total income for the year will be under £12,500 so you will not pay Income Tax and
IF you are not liable to NI
IF you continue to do some work for the company (otherwise why keep it trading)

then what you are wanting to do is make a bonus payment from the reserves on which you have already paid the tax. Effectively the company would have costs in excess of its income, so those costs (you) would have to be taken from Reserves

7

You can pay yourself over a few years, although if you’re not trading you can hardly pay a salary, as what is the company employing you to do? You would have to declare it as dividends instead, enough to use up your personal allowance and tax-free dividend allowance. However, you’d also have to continue to submit annual accounts and tax returns until you would the company up.

If you don’t want to continue trading, and assuming you are the only shareholder, then you can just apply to have the company removed from the register at Companies House, without a voluntary liquidation or the involvement of a liquidator.
https://www.gov.uk/government/publications/company-strike-off-dissolution-and-restoration/strike-off-dissolution-and-restoration

It would be best to employ a qualified accountant, just to make sure the final entries are done correctly and in the most tax-efficient way, but this is much cheaper than a licensed insolvency practitioner.
You would need to take any assets such as fixed assets out of the company first, empty the bank account, and draw up a final set of accounts and tax return. But if your total reserves are not too much, you can declare a capital distribution on winding up. This is then treated as a capital gain rather than income tax, and so if it’s less than £12,300 you wouldn’t pay any tax on it.
If it’s more than this, you could take some as salary (assuming you hadn’t yet used for personal allowance), some as dividends and then the remainder as capital.

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8

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