Riddle me this (ltd company, self-employed)

[IneedhandcreamandaNC]

Today I met an agency nurse. She was telling me that she picks and chooses her shifts through an agency but that she is self-employed. Okay, fine. But I made a comment about tax self assessment and asked if it were much of a pain. The nurse told me that she set up a limited company to pay herself.

What's the benefit? Google suggests no NICs (not necessarily a benefit I think - no state pension?) and that company tax rates are lower than personal tax rates. Is that why or are there other benefits? It sounds a little too easy or is she very savvy? I didn't have time to ask her as we were needed elsewhere.

I'm NHS staff and don't plan to change, not at the moment anyway. But I was surprised she went to the effort of a ltd co.

By being a Ltd company you can structure things so that you do pay a lot less tax. You still pay national insurance though so still eligible for a state pension.

It cost me 20quid or thereabouts to set up a limited company, second year now and still not making a profit so not paid tax. I do pay my nic and pension tho but not drawn a salary yet. Just keep reinvesting. I am paye three days a week and self employed the other 4

With a Ltd company you can pay yourself a wage upto the tax free allowance, then draw down dividends for anything above the tax free rate at a much lower % than the 20% personal tax rate. If labour get in I imagine they'll want to change this, already it's not as great as it used to be, rightly so perhaps, but most directors of small Ltd companies do this

Dividends are taxed at a lower rate than earned income. A lot of company directors pay themselves a 'Directors Salary' which is just enough to get their NI contributions for state pension etc but not enough to have to pay tax on then pay themselves the rest of their income through dividends. There is a higher admin burden to being a Ltd company than self employed sole trader though.

If you set up a limited company, you are not self-employed - you are a director and employee of the company. Corporation Tax is lower, but any salary you draw will be subject to Income Tax. If you pay yourself dividends, you will be taxed on those at a lower rate.
I would always advise consulting an accountant, to make sure all legal and taxation obligations (of both the company and individual directors) are fulfilled.

Hopefully the nurse is smart enough to have done that. A number of years ago she worked in "finance" so she ought to have an idea of the important of complying with the law. But she did describe herself as self-employed so maybe not. Or perhaps she finds it easier to say that for some reason.

Thanks for the information!

Piggybacking on this, I mentioned it to a friend who said that an agency once opened a ltd co on his DP's behalf, without his DP's knowledge, to pay her wages. Apparently it was a nightmare and even now forms ask if she has ever dissolved a company. Is that sometimes seen as an indicator of being less creditworthy? It's the only thing I can think of, rather like how having a credit history and being on the electoral roll are seen positively in credit scoring.

You need to check out the IR35 regulations. There was a bit of a problem a few years ago with lots of public sector agency workers having to pay back thousands of unpaid tax. Most agencies now ensure workers are compliant.
https://www.gov.uk/guidance/understanding-off-payroll-working-ir35

I've changed username, because it may become pretty outing what I do for a living.

There are a few reasons why people who have Limited Companies and may say they are self-emoloyed, but I'll name only 2:

1 Just because it's easier. When people describe themselves as a director of a company, generally, unless people understand, they get a whole ton of questions. Some people think "companies" are only for shops or big corporations and you have to employ loads of employees. That's not the case, you can be a company and it be only you as the Director who works in it.
So, to make life easier you just say "I'm self employed ", as most people understand this

2 Some people dont understand that they are no longer self employed, and are now shareholder and Director of a Ltd Company.

To give you an example, I was talking to this gentleman who was an electrician. I was asking about his Dividends, PAYE salary etc.

He genuinely had no idea what I was talking about. He said, he doesn't understand the whole thing. All he does is every month send his accountant detail of how much he's earnt and his expenses, and his accountant does everything. He just signs the paperwork, pays what the accountant tells him to pay, and trusts everything his accountant is doing.
He didn't know his accountant had structured a Ltd Company, as far as he was concerned he was "self-employed".

I suspect your friend's DP has fallen into no 2.

I suspect what's probably happened is she's trusted whoever was sorting this, signed some forms, but didn't really understand what was happening.

(Nb, there's no judgement from me, who fall into no 2. Tax can be complicated, so maybe dont know that they should be asking what is happening wuth their earnings etc)

And don’t forget corporation tax! A lot of people think limited companies pay a lot less tax but they pay 19% on all profit (and that’s increasing). I would expect that as a nurse, she would have loads of ‘expenses’ so will have to pay this. It actually works out as more tax in certain cases.