Becoming a Ltd company and tax credits

[debbs77]

Hi all,

I am looking into changing from a sole trader to a Ltd company. How will this affect my tax credits? I currently just withdraw my earnings from paypal as and when. Can I pay myself weekly when a LTD company? It's all so confusing!

What is your turn over? It costs to run a limited company.

Hi If that is going to be your only income you can pay yourself around 8k a year with no tax or national insurance liability. The rest of your income can come from dividends. Having a ltd company is no longer as attractive however due to the new dividend rules. You really do need advice from an accountant as its completely different to being self emplloyed.

If your business is a Ltd Co, you become its employee
so your wages come under full NMW rules
not worth doing if you still want the taxpayer to subsidise your business

Ta1kinpeece - that is not true - Directors are exempt from NWM legislation as long as there is no employment contract in place

I think the key question is why you're thinking of becoming a limited company? As Perdita says there are costs to it - whether directly if you pay someone, or in your time and grief to do things yourself.

There's a pretty helpful page on ways of paying yourself as a limited co. here. If you pay yourself a salary you'll need to run your own payroll (not difficult, but you do need to make sure you do it properly) or pay someone else to do it.

Separately, Ta1kinpeece - comment about taxpayer subsidy not necessarily that helpful. We got some tax credits for the first 2-3 years running our business (mainly covering childcare costs) but society has had its money back many times over via the tax/NI we & our employees have paid in subsequent years. I suspect that's the case for a lot of new start ups esp for women with small children needing childcare.

A ltd company is a separate legal entity to you, the income belongs to the company not you and can only legally be taken from the company via salary or dividends. You will have to file ltd accounts with hmrc, abbreviated accounts with companies house and also complete annual returns. There is a lot more compliance in running a company to being a sole trader. Accountants fees will also be higher and depending on the turnover these additional fees can wipe out any tax savings. A lot of accountants will offer a free initisl consultation so have a ring round and get some professional advice.

Ta1kinpeece - that is not true - Directors are exempt from NWM legislation as long as there is no employment contract in place

Not for tax credits they are not. tax credits will now assume that you work the required number of hours at at least the minimum wage. That is another reason why I cant see any benefit to being a limited company.

Thanks for the advice lovelies.

As for the snide comment, I AM a tax payer and I always have been. I am a single mum of six, I work extremely hard, I don't get any maintenance, so tax credits need to be factored in to my considerations for my business. I am looking to expand my business and becoming a Ltd company seems the next logical step but I'm not sure it is a sensible one!