Better Return by Holding Cash Personally?

Newsletter issue - April 08.

If your company has built up some large cash balances you should review the interest rate it is earning on those deposits. Competition between banks means that even business deposit accounts can pay up to 5.5% on deposits of £25,000 or more. The interest rates paid on personal savings accounts can be higher, but you should also consider how much tax you and the company will pay on the interest earned.

From 6 April 2008 you are likely to pay tax at 20% on your savings income, but where your non-savings income, excluding UK dividends, amounts to less than your personal allowance of £5,435, you may pay just 10% on interest received. However, if you are a higher rate taxpayer you will pay 40% tax on interest received. Your company on the other hand will pay tax on interest at a minimum of 21% from 1 April 2008, which will rise to 22% from 1 April 2009. Although if profits exceed £300,000, or you control a number of companies, the marginal corporate tax rate could be as much as 29.75%.

In summary there could be a tax penalty of up to 19.75% (29.75% - 10%) where surplus funds are held within your company rather than in your own name. If you are paying tax at a lower rate than your company it makes sense to extract as much cash as possible, without pushing your total income into the higher tax band. The most straightforward and tax efficient way of extracting cash is as a dividend. Although if there are other shareholders who hold the same class of shares the same rate of dividend must be paid to all those shareholders.

Finally in these difficult times for banks remember the compensation limit for deposits held in UK banks is capped at £35,000 per banking license. So if you hold several accounts with one bank, £35,000 is the maximum compensation you will receive if that bank fails. Also the compensation scheme does not cover deposits made by companies rather than individuals.

What our clients say about us...

  • "Paul has provided accountancy services to my company for 2 years now. I can recommend Paul very highly; his skills as an accountant are highly detailed and professional and he is always available to provide advice. One aspect of the way Paul works that I greatly appreciate is a preference to meet face to face when there is a detailed conversation to be had. I personally find this more productive and is a benefit of working with a small accountancy firm that you wouldn't get with the large faceless providers."

    ALISTAIR FAIRWEATHER - PROGRAMME & PROJECT MANAGER, DELIVERING/RESCUING I.T. 7 BUSINESS CHANGE WITH BUDGETS UPTO £50M INC SUPPIER MANAGEMENT

  • "I couldn't ask for more from Paul as an Accountant. Paul has been accountant to Work Relief Charity Recruitment for just over a year now and is proving an invaluable asset. Accurate, knowledgeable, flexible with an emphasis on service delivery, I would recommend Paul's services to any organisation looking for an accounts professional."

    Neil Price - Managing Director at Work Relief Charity Recruitment

  • "Paul was a referral from a family member when I started my business 2 years ago. As this was the first time I had ever run my own company I was totally clueless over the financial side of matters and was worried that I may have made mistakes in any of my accounting. I needn't have worried as after enaging Paul for a set monthly fee he was always there on the end of the phone for all sorts of questions I had and no matter how trivial they were Paul gave me all the information I required and more and did an excellent and painless job at the end of my first year! Couldn't ask for any better to be honest. Just two words - hire him!!!"

    Lee Westrap MBCS - Director - Bulldog IT Services

Request a Callback
Please complete our form
to request a callback
Get a Fixed Quote

Competitive fixed quotes
for agreed services

Find out how to Make more, Keep more and Work less

Increase your profit and
reduce tax liabilities

Your Business Size?

Expert advice for your
business size

 

Marker

Booth & Co  |   The Hermitage  |   15a Shenfield Road  |   Brentwood  |   Essex  |   CM15 8AG        Telephone: 01277 224666    |   Email: info@boothandco.co.uk