Registering as a Limited company - advice please?

[JingleMum]

My DP is starting a business selling men's designerwear, he's been doing it for a couple of months and it's going well. He expects/hopes to earn around £40,000 a year, although there's scope for it to be a lot more than this.

He had a brief chat with an accountant who told him to register as a ltd company as he'll never pay more than 20% tax? He is seeing the accountant for a proper chat in 2 weeks time, but I was hoping you could help me with the following?

Would my DP submit his account books to the accountant monthly and then he can draw a wage every month? I'm assuming accountant will send NI & tax payments to HMRC?

Does DP need to do anything else other than keep an up to date account system of what he's bought & what it sold for?

He's also self employed doing something else, am I right to think he can continue with this and it will have no effect on the Ltd company? IE - they won't be pooled together and taxed together?

With £40,000 profit his turnover will be in excess of vat registration thresholds. He will need to register for vat either as a ltd or self employed. Has he done that ?

Thanks for replying. Apologies, I meant around £40,000 turnover, not profit (although there's scope to earn much more than this eventually) The accountant told us that the VAT threshold was £80,000 turnover. Is this correct?

He had a brief chat with an accountant who told him to register as a ltd company as he'll never pay more than 20% tax?

Whilst the Ltd company won't pay more than 20% tax on the profits it makes, your OH will be liable to personal tax on whatever money he withdraws from the ltd co whether it's dividends or wages or a capital distribution upon eventual sale/closure, so whilst technically correct, you do need to understand the broader context and the double taxation that happens when profits are eventually withdrawn from the company. You're basically just keeping the profits in a low tax "wrapper" temporarily until you draw the profits out, so it's more a matter of delaying the ultimate tax due rather than reducing/avoiding it.

Of course, circumstances and careful planning may mean that ultimately less tax is payable, if for example, the profits are drawn out in a future year when your OH has no other income so can utilise their personal allowance or drawn over several years as dividends utilising the new £5k dividend 0% tax band. Also opportunities for you to be involved as a director and/or shareholder so some of the profits can be diverted to you to use your personal allowance, basic rate band and dividend 0% band.

Planning and timing is the key to it all, as is having a good accountant on board when you're operating as a ltd co.

With t/o of only £40k though, I can't imagine his profits will be high enough to justify the cost and bureaucracy/hassle of a ltd co. If he makes a loss, it's trapped in the company. Whereas if he made a loss as a sole trader, it could be offset against his employment tax and a tax refund claimed. He really needs a long solid chat with a decent accountant and he needs to be clear as to the extra costs, hassle and risks he faces by opting for the more complicated ltd co route as opposed to the simple sole trader option.

£40,000 turnover on a retail business is going to be a profit of only a few thousand. If you want the accountant to do monthly books, payroll, statutory returns and annual accounts that will be several thousand pounds.

You need a realistic business plan with projected income and costs. That will help you to work out what route is best. You also need to look at DH current tax position, for example if he is currently only earning £15k it is different from if he is earning £150k in terms of tax efficiency.

Is there a reason why he couldn't also do his other self employed work through the same limited company? That would be more cost and tax efficient.

My accountant told us that it was worth having a Ltd company if you were earning £40k or more - earning not turning over. That was five years ago so things may have changed but a 40k turnover sounds small.

We take a salary of whatever the tax ceiling is, and then the rest in dividends - so do not pay personal tax as well as corporation tax.

Accountant should be no more than £100/month. You can find one online that specialises in small led companies if his guy turns out too expensive. He will need to keep his expenses recorded but not much else. My accountant has software hooked up to my business banking account and it generates automatic invoices with minimal effort from me too so I find that a good and efficient system. your accountant will advice on efficient tax practices but yes, on £40k turnover he should not be paying more than the 20% corporate tax and will be able to take approx £15k (personal) tax free after that.

and will be able to take approx £15k (personal) tax free after that.

Not if he has other earnings which use up his personal allowance he won't!

True.

In a rush but will read all replies properly soon. Thank you for taking the time to reply.

Just a point, it's not a bricks & mortar retail business. It's done from home, all online, no huge overheads.

Jingle, is it his only income?

And assuming you are not the shareholder of any other company, he should make you a director so you can take advantage of your £5k tax free dividend allowance.

No Dolly he is self employed doing something else, earning approx £15,000 profit a year, plus he rents a property out that brings in around £6,000 profit a year.

Op you have to submit accounts each year and a confirmation statement (used to be known as an annual return). I work for c0mpanies h0use and it's amazing how many people set up a company without finding out the disclosure requirements then end up with a criminal record and subject to hefty penalties.

I think that what is confusing the matter is the very recent change in rules I've dividends.

I used to have two jobs

In my second job I am a shareholder & draw minimum wage which when I had two jobs I had to pay tax on but now I have one job I'm under the threshold.

The rest I draw in dividends. The company pYs corporation tax so I don't hav to pay any more.

However the rules have now changed so the amount I can draw in dividends without being liable for tax is less.

Cocochoco Fri 09-Sep-16 08:28:08
My accountant told us that it was worth having a Ltd company if you were earning £40k or more - earning not turning over. That was five years ago so things may have changed but a 40k turnover sounds small.

We take a salary of whatever the tax ceiling is, and then the rest in dividends - so do not pay personal tax as well as corporation tax.

I hope your accountant has advised you of the updated rules from April 2016 as you probably will have a personal tax bill going forward