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Thread: How do I reduce the amount of tax?

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    How do I reduce the amount of tax?

    Hi,

    I am developing a management framework. I am looking for the most tax efficient way to take it to market.

    Simplistically:
    1. If I publish it in my own personal capacity, I may pay 35% as per my personal income tax rate.
    2. If I establish a business to market it and I pay myself a salary, I may pay 35% personal income tax as well as the 30% company tax.

    What is the recommended, safest, most tax efficient route to go?
    Thanks,
    Eldon

  2. #2
    Diamond Member Justloadit's Avatar
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    You only pay the company tax if the company makes a profit. If you are the sole owner of the company, why are you showing a profit in the books? All available cash in the books is made out to the owner as income, which is taxable under the personal tax. Thereafter, when the company needs money to trade, the owner then loans the company money, and is shown in the books as Loan account. The company then repays the loan account when it can, the one problem that may arise, is that the company grows, and requires more loans from the owner to continue trading, and the loan account can grow to a substantial amount over time, and gets more difficult to get back as time passes. The day that the company sold, is the day that you cash in your loan account, and you pull the full amount with out any tax payable.
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    Whatever you make will be taxed however the rate of tax changes depending of thr income you getting, for example if you are working for a boss and you do this on the side, the amount you making will be added to your income and therefore your rate of tax will increase, maximum is 38% as per this years's tax tables. If you are a sole proprietor you will be taxed as an individual, if you register a company you will be taxed at 28% on profits, you can also register a micro company that gets taxed on turnover so say you knwo that you won't make more than a million a year you can pay turnover tax which for you might work out well because you don't really have much expenses to claim and at the same time tax is very low and you don't have to keep books, all you need is to keep sales records, the only problem with this is that you can only change the type of company every 3 years so if all of a sudden your company makes 20 million a yeat then your tax will shoot up and you can't change the company until the 3 year cycle is finished.
    You can do with loan account but the comapny has to pay interest on the money on which you will be taxed because you are earning interest. And yes you don't have to show profit but the receiver will get you eventually lol...
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    Quote Originally Posted by Justloadit View Post
    You only pay the company tax if the company makes a profit. If you are the sole owner of the company, why are you showing a profit in the books? All available cash in the books is made out to the owner as income, which is taxable under the personal tax. Thereafter, when the company needs money to trade, the owner then loans the company money, and is shown in the books as Loan account. The company then repays the loan account when it can, the one problem that may arise, is that the company grows, and requires more loans from the owner to continue trading, and the loan account can grow to a substantial amount over time, and gets more difficult to get back as time passes. The day that the company sold, is the day that you cash in your loan account, and you pull the full amount with out any tax payable.
    If this is the only consideration why use the company at all. Just pay the personal tax and be done with it. The answer of course is because there are many other factors to take into account other than just the simplistic final tax matter.

    My answer to the OP is that "it depends". Sorry but its difficult to make a complex issue like tax simplistic.

    "Safest"?. Safe for who? Safe doesn't really tend to be an aspect of tax in my opinion.
    "Most tax efficient". Well, a clever tax advisor could probably shave off a few percentage points in the final calculations and save you some money using a certain salary structure as a company employee and declaring dividends for certain amounts, right off certain costs as deductible expenses etc etc. Point being an expert needs to take a look at your specific situation and then give you his opinion, which will most likely change next year. But then he might not take into considration the admin costs involved in running a company.

    If you had asked "simplest" then perhaps "personal capacity" would be your best option, if this business remained smallish.

    If I were you I would focus on generating income and only creating companies if there were other reasons besides ever changing tax laws. Worrying about minor advantages now is not your immediate priority.

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