I am now fully employed and have ceased trading through my limited company. I still have around £40,000 left in the bank. I am aware that I can take out £2,000 tax-free by dividends until my retained profit is all used up. I don't have a director’s loan account. My questions are: (1) Can I continue to pay into a private pension, which I pay £700 a month into at the moment? (2) Can I continue to pay a salary to my partner of £800 a month?
Arthur Weller replies:
If the trade has ceased, HMRC might argue that any money paid to a pension scheme on your behalf is a distribution to the shareholder. With regard to the £800 salary per month to your partner (I am assuming that they are not a shareholder), it is not clear what kind of partner you are talking about (i.e. domestic or business), but if your partner is considered to be 'connected', you (i.e. the shareholder) may be taxed on this payment as a dividend. If they are not connected to you, this payment could be treated as a transfer for inheritance tax purposes.
This question was first printed in Business Tax Insider in October 2018.