Kirkpatrick & Hopes - Succession Planning Accountants

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Pay 2% tax (it's the one thing that Wayne Rooney and I have in common)

Like many of K&H’s clients, Wayne Rooney and I pay only 2% tax.

Of course this is only half true, or in fact one-third true, which is why Wayne Rooney tried to get the PCC to punish the Sunday Times for its recent ‘2% tax rate’ story about him (here).

As Wayne would no doubt be keen to explain to you, the 2% is the tax on money lent to him by his limited company. BUT the full truth is that there are two other taxes that need to be paid:

  • Corporation Tax of about 20% to 30%
  • personal tax of 25% to 36%, when the loan is eventually converted into taxable personal income

Having said that, taking a loan from your limited company can be a very effective strategy to defer and possibly reduce your overall tax bill. To benefit, you will need to fill in some extra tax forms and you must usually:

  • have a limited company with surplus cash in it (e.g. money it is saving for the annual Corporation Tax bill)
  • have used up your 20% basic rate tax band
  • be able to get a return on more than 2% on the money you borrow, for example by putting it in a mortgage offset account to save 6% interest, which equates to 10% gross of tax – which is what I do
  • be able to repay the loan at the end of your company accounts year (or within nine months of it, to avoid other tax traps)

You may also save even more tax by deferring income into later years when your tax rate is lower.

Another benefit is that by putting the money back into your company before its account year end, your balance sheet will show a much bigger cash balance on its published accounts, and this should improve credit ratings.

Let me know if you’d like to know more about how this works and if you can benefit.

Is there anything else Wayne and I have in common?

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