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Original poster

Pros & Cons on setting up Limited Company

20 replies

FeelingLucky · 07/10/2008 14:49

Dh and I are both freelance. I've not worked since having DD 16 months ago.
Accountant is suggesting we set up a limited company so we can income share as I'm probably not going to earn the amount I used to, if at all (having trouble getting work for a few months but that's another story...)

We trust our accountant and will probably go with his suggestions but just wondered what the MNet verdict is on this, any experiences - good or bad to share?

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Cranberry · 07/10/2008 15:02

money.uk.msn.com/business/article.aspx?cp-documentid=5792010

Have read of this I'll post more later for you

littlegirlblue · 07/10/2008 15:48

oh, am watching this as we've been advised the same...and I'd like to know too!! BUMP!

Original poster
FeelingLucky · 07/10/2008 18:58

Cranberry, thanks for posting that article. We're meeting with accountant tomorrow so will ask him about the law changing.
In the meantime, noticed the article was written a year ago and law still hasn't changed ...

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Original poster
FeelingLucky · 07/10/2008 18:58

Cranberry, thanks for posting that article. We're meeting with accountant tomorrow so will ask him about the law changing.
In the meantime, noticed the article was written a year ago and law still hasn't changed ...

OP posts:
Original poster
FeelingLucky · 07/10/2008 18:58

oops ... sorry for double posting, don;t know what happened there.

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Cranberry · 07/10/2008 19:29

We're still learning too as we've only just finished our first financial year, end of June. We made a few mistakes but found a much better accountant this year so hopefully things will be better. Here's another articale worth reading:

www.company-wizard.co.uk/guides/PAYE-Dividends.aspx

I have very little financial experience but have managed the books pretty well, PAYE,VAT and invoicing etc, it's actually worked pretty well working with my husband I'm hoping to learn lots more this.

Eddas · 07/10/2008 21:13

they'll be more admin involved and technically the money won't be yours, it'll b the company's. You would both be shareholders and would receive a salary and dividends. Some people don't like dividends so just take a salary ut the tax saving is due to aking dividends rather than salary so seems kinda pointless to take salary!

The acountant will discuss evrything with you. But beaware that as there is more admin you will either have to do this yourself or will pay someone to do it(ie your accountant) You will have to prepare annual accounts(which you probably do as a sole trader anyway) but they are more envolved. Also you will still have to file a tax return each year.

Original poster
FeelingLucky · 07/10/2008 22:01

Accountant says he'll take care of everything and will charge us £1025 as an annual limited company fee plus £200 for being VAT registered plus £150 for adding me in.
Plus £170 to form and customise Limited Company.

Sound okay? Hope I'm not being overcharged??

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ShrinkingViolet · 09/10/2008 10:20

Exepnsive for forming limited company (you can do it online for £37 which was the cheapest I found) but very reasonable as an annual fee. I'm much more expensive (at least double that), but I'm very hands-on day-to-day, as I seem to specialise in clients who need a fair bit of hand-holding.

flowerybeanbag · 09/10/2008 10:26

That's more than ours is I have to say. Ours works on an hourly rate but estimates that to do our accounts and other bits and pieces we need to do, as long as we keep the records we need to, won't be over £1,000.

Doesn't include setting up company, that's all been done a long time ago, but just for accounts stuff.

Original poster
FeelingLucky · 09/10/2008 12:20

Thanks for answering.
My accountant is open to a bit of haggling but as I met him before replies yesterday, I just went along with his fees. Seems okay.

One thing he mentioned was that we could get money off childcare tax free - is this right? We pay £174 a week for DD's nursery.
Will talk to him about it when he calls but in the meantime, does anyone know about this?

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igivein · 09/10/2008 12:36

Yes, it's a government scheme whereby you 'sacrifice'up to £243 per month of your salary (and your dh's salary - you can both do it)to buy childcare vouchers. The sacrifice is done before tax, so you don't pay tax on that amount. I think it saves us about £1500 pounds a year, so well worth it. I'm useless at links, but look at childcare on HM Revenue & Customs website

Original poster
FeelingLucky · 09/10/2008 12:38

great, thanks for that, igivein (hope you don't ... give in, I mean )

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goingslowlyroundthebend · 09/10/2008 12:39

The hitch I have found is corporation tax. Having just had first years accounts in it looks like I have made a profit (why doesn't the bank balance show that?) then even if I leave that money in the bank and don't touch it, ie roll it over into this year to cover any down time, I have to pay a shedload of corp tax. If anyone can answer this one that would be great! It seems to be if LTD, don't dare make a profit!

Original poster
FeelingLucky · 09/10/2008 12:43

The accountant says that we will get dividends, so no profit??
Don;t really understand it. Hopefully someone will come along to answer your question about corporation tax - haven't got round to thinking that far ahead yet.

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Cranberry · 09/10/2008 14:35

The aim is to make no profit at all. There are loads of things you can claim so long as you put the company name somewhere in the address i.e mobile phones, your broadband and mileage plus your monthly salary. If you show a profit you'll have to pay about 20% corporatetion tax on the profit.

Cranberry · 09/10/2008 14:42

Forgot we paid £587 with our then accountant to set everything up. I did the registration for VAT myself online, we use the small business scheme which is very easy. you don't claim any VAT you just pay a set % each quarter and you get an extra 1% in the first. It works well for us as we don't have anything to claim, I don't expect you will either.
My accountant is really good because he encourages us to do as much as we can to keep the cost's down, he is my friends Dad though

Cranberry · 09/10/2008 14:43

'first year' that should read!

I complete my return online.

Eddas · 09/10/2008 15:04

corporation tax is charged on the profit, the same is if you're self employed. It has nothing to do with money in the bank.

A common misconception regarding tax for the sole traders/partnerships is that it is charged on what they draw out (ie £100/week) when that is largely irrelevant, and tax is charged on the profit.

re dividends, basically, you take the profit out in dividends.

The company is what they call a seperate entity. sort of like a third person. So you do not have direct access to the money in the company, so you can't just take £100 like you could as a sole trader. If you take money out it must be in the form of salary or a dividend.

goingslowly, are you sure the figures are correct? if you don't think you've made any money, does the profit look too high? accountants do make mistakes.

Cranberry · 09/10/2008 21:04

open the link and scroll down, it tells about dividend payments:

www.dixondevelopment.co.uk/wordpress/?m=200809

I'm learning myself by all this research

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