Freelancer - should I reopen my Ltd company or continue as self employed? Best way to save for the children?

[mummamoney]

I'm preparing to come off maternity leave and have decisions to make.

Situation in summary. DH has a steady PAYE job, good pension and benefits.

I work freelance ad hoc around the families needs. I did this through my own Ltd company for year and paid corporation tax (was never over the higher tax threshold anyway). Then I closed this and continued with one company only under a zero hour contract. Now my maternity leave is done and I'm not having any more babies is doesn't make sense to continue in that way and I want to work for other companies etc. I have been earning around 30k for the last few years and plan to increase this to about 80k as I'll be working more full time in the next few years.

My income is additional to our family's needs. DH pays for the mortgage, bills etc and I pay for things like the holidays that we can do without.

So now I need to decide whether to have a Ltd company again or proceed as a sole trader. I need to know the advantages and disadvantages of both. Do I need an accountant or IFA to advise on this?

Also DH and I are considering putting all my income into investments for the children. Planning for possible school fees in the future. Can they have shares in my Ltd company? Would that be worth it tax wise?

Many thanks

You need to talk to an accountant as they’ll be more up to date with current legislation.
A few years ago mine told me Ltd was more tax efficient than sole trader for my projected income, and the threshold was definitely a lot less than £80k, but the tax% and dividend tax free allowance have changed now.
Do you really intend to use all your income as investment for your kids? What about your own pension? This is where you can save tax. Please don’t just rely on your husband’s, you should plan your own future.

You can have minors as shareholders, but is it a good idea? Shareholders have rights and responsibilities that I wouldn’t want to give to young children. Would you pay them £40k a year each in dividends? They would need to pay tax on dividends and if the money is then in their account, how would you access it to pay for school fees? Definitely speak to an accountant to know pros and cons.

Definitely advise speaking to a tax accountant as many of the benefits of LTD companies have now changed including the massive reduction in dividend tax allowances which used to be the main reason for someone in your shoes choosing LTD over sole trader.

If you're thinking about inheritance, although appreciate that's probably a long way off, shares in family businesses which are trading limited companies are exempt from IHT (assuming they're more than two years old).

And as PP said, your priority should be shovelling money into a pension, esp if DH has one and you don't. You don't know what the future holds.

If you are increasing your earnings don't forget to consider VAT registration limits.

There are pro's and con's for both, depending on what you want it to do for you.

I found a lot more perks through running my business as a ltd company - for example putting through dental bills as staff welfare and having flexibility in running car and travel expenses. It all depends I guess.

Then I started to wind it down and went sole trader which was simpler and cheaper from an admin and accountancy pov.

I changed careers some years ago and don't run a company any more so not sure of most recent rules.

If your children are under 18, income they receive is taxable and as they are legally classed as minors their tax liability passes onto their parents which may be considerable if your DH is an additional rate tax payer

They each have their own tax free allowance like the rest of us though

Thank you everyone for the thoughtful replies.
I do have a pension but it's a private one not a shiny public service one. I can and will start paying more into this thank you for raising it.

I know things have changed with the Ltd companies but can't quite work it out. At the moment my travel expenses are huge and I don't see that changing so that needs to be considered.

I wouldn't be looking to pay my entire income to my children in dividends but a good chunk. It does need thought 🤔

They do, but if minor children receive income over £100 which derives from gifts from their parents, then the parents get taxed on that income instead, at the parent's marginal rate. It's an anti avoidance rule to stop parents putting everything in children's names to get it through at a lower rate.

It's different (and the usual rules apply) if money comes from e.g. children's earnings, gifts from grandparents /other relatives, inheritance, or if it's interest via a junior ISA (latter untaxed, so not subject to the £100 rule).

No only £100

This is incorrect - children have the full personal allowance, but there are restrictions on this where income derives from parental gifts (the £100 rule) - see my post above.

If a child was e.g. an actor and they received an income from that that was nothing to do with their parents, then the normal income tax rules apply.

No idea about how you organise your work and taxes, but I will recommend you think very carefully about saving a lot of money that your kids will be able to access the day they turn 18.
you will not be able to stop them buying a fast car, taking their gang to Ibiza for a month, and putting a large bet on the 3.30 at Aintree.

I work through a limited company but have now put myself on PAYE as there is no advantage in paying yourself through dividends anymore. Once the company’s income hits a certain threshold you have to register for VAT which is a nuisance as you are then an unpaid tax collector for the government. I do put a lot of expenses through the company which is the main benefit - it pays for phones, broadband at home, some of the utility bills etc. I would say talk to an accountant definitely (only a good one - decent ones are expensive but worth it).