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Tony and Mary each own 50 per cent shareholdings in two companies that they established 10 years ago, Ynot Ltd and Yram Ltd. Both have a financial year end of June 30 but there the similarity ends. Ynot has had another bad year as one of its major customers switched supplier. As a result, Ynot&#39s pre-tax profits will be around £40,000. On the other hand, Yram has had a very good year and is likely to turn in pre-tax profits of an estimated £200,000.

Tony and Mary have decided that all Ynot&#39s net profits will remain in the company this year and they will not receive any bonuses or dividends. Instead, they will focus on using £50,000 each of pre-tax profits from Yram for their own benefit. They are both concerned to build up funds for their retirement.

Tony and Mary are both higher-rate taxpayers in their mid-40s and members of Yram&#39s small self-administered scheme. Based on their current remuneration and level of funding, single contributions could be justified this year of £20,000 for Tony and £25,000 for Mary. For every £1,000 increase in remuneration, Tony&#39s annual SSAS contributions could be increased by £700 and Mary&#39s could be increased by £650. They would like your advice on the following:

1: If they were each to use £50,000 of pre-tax profit to pay a dividend or bonus, how much would they receive after tax and National Insurance contributions? IR35 is not an issue.

2: Assuming they each use the full £50,000, what would be the optimum mix of bonus and dividend to produce the biggest net cash figure?

3: What are the relative advantages and disadvantages of making SSAS contributions rather than investing net cash personally?

4: If they wished to maximise their pension contributions, what would be the optimum mix of bonus, pension contribution and dividend?

5: What combination of bonus, dividend and pension contribution would you recommend and how would you justify it?


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