ltd, salary, tax etc

[J.C.E]

I am a limtied/vat reg comp- although it always gets me thinking/confussed!

Basically my accountant set me up to draw a salary of £680 odd so I am below the limit of income tax- I get this

I get a can take a dividence (and so does my mum as a shareholder) - i sort of get that

so does that mean- if I do not increase my salary above £680- i will not pay any income tax at end of tax year- and poss only NI?

obvisouly vat returns every 3 months- I undertstand

I undertstand this will possibly make getting my 1st mortgage a bit more tricky as not all lenders take the figures in a lim company into account and they want to base on a taken salary.

Also where does this put me in 100years time when I am retired and all my money is 'in the company' -how do I 'get my hands on it'

just looking to understand it all a bit more!

Ta

 

[SparkyChick]

As I understand it (I'm setup the same way), you will have to declare the dividends and pay capital gains tax on them. And obviously, if you're paying dividends you'll be needing to pay corporation tax (or whatever it's called) and the a portion of your expected tax bill for the next financial year.

You don't leave all the money in the company, that's what dividends are for... unless you're going to retain it to build a cash surplus for say hiring someone, take out what you don't need and invest it for your retirement... or maybe put down a sizeable deposit on a home

That's my limited understanding I'm yet to get my first years accounts out the way, but I'm dreading next year when it comes time for a tax return etc.

 

[Adj]

Getting a mortgage will be difficult with most lenders because you are in fact an employee (even though it's your company) on a very low salary.
Any money accrued within the company can be drawn down as salary or dividend over the years after retirement but you will pay tax after your standard allowances.
If you're sensible you will also run a sole proprietor non VAT business on the side for domestic jobs - legit of course.

 

[Andy-1960]

If you pay yourself a dividend, you still have to pay tax on the dividend albeit at a slightly lower rate than standard income tax.
As for your second question, you either sell your company or liquidate it.
Btw, how old will you be in 100 years and will you still be bothered about getting your hand on the money! Lol

 

[Octopus]

Getting a mortgage being SE or Ltd is probably as difficult as each other.

I remortgaged recently and our lender needed copies of the SA 20 from HMRC

As for being Ltd. The tax advantages were reduced by George Osborne about 3 years ago

 

[J.C.E]

If you pay yourself a dividend, you still have to pay tax on the dividend albeit at a slightly lower rate than standard income tax.
As for your second question, you either sell your company or liquidate it.
Btw, how old will you be in 100 years and will you still be bothered about getting your hand on the money! Lol

i am only 25 now- so wanted to keep the right side of the law- but keep as much money as I can in my pocket- but also bearing in mind I will want a mortgage within the next year or so

 

[Octopus]

If you want to get a mortgage you need about 3 years made up accounts by your accountant...... and a very big deposit

 

[J.C.E]

3 years- but they should base on the latest years figures
And I am working of the assumption- 10% deposit and a mortgage of 5x my lim com profit as apposed to my salary- and know its tricky this way but not impossible

 

[Octopus]

3 years- but they should base on the latest years figures
And I am working of the assumption- 10% deposit and a mortgage of 5x my lim com profit as apposed to my salary- and know its tricky this way but not impossible

I recommend you go and ask a few lenders ......... being young, having a company for only a couple of years IS going to be held against you.

 

[Leesparkykent]

3 years- but they should base on the latest years figures
And I am working of the assumption- 10% deposit and a mortgage of 5x my lim com profit as apposed to my salary- and know its tricky this way but not impossible

I've sent you a PM mate

 

[J.C.E]

I've sent you a PM mate

see! thats why i have always rated Lee more than you Murdoch!

 

[Octopus]

see! thats why i have always rated Lee more than you Murdoch!

I've no idea what he said in his PM, but what I've put on the open forum is for all to view - theres not much more to add.

I'm working with a builder ATM who can't get a mortgage ........ he has a deposit but his income is too low - I did try and suggest he declared more to HMRC, but he didn't like that suggestion.

 

[derek]

Having just got a mortgage myself I was told that the vast majority of lenders want to see a statement signed by an accountant showing, for a Ltd co, three years of turnover, profit and dividends payments before they will consider lending to a director based on their dividend earnings.

 

[Leesparkykent]

I've no idea what he said in his PM, but what I've put on the open forum is for all to view - theres not much more to add.

I'm working with a builder ATM who can't get a mortgage ........ he has a deposit but his income is too low - I did try and suggest he declared more to HMRC, but he didn't like that suggestion.

All it was mate is how I obtained a morgage with lack of accounts etc many moons ago.

 

[Squid]

For mortgage you usually need 2 years worth of accounts, the tax you pay is corporation tax and usually the minimum in NI contributions.

Speak to your accountant and broker, dependant on where you live s there is a difference between getting approved for a £300k mortgage and a £100k mortgage.

Remember to also maximise your expenses as these come out of the company pre tax deduction so you then pay less less corporation tax, keep all receipts and check your accountant what can be claimed.

 

[Octopus]

We remortaged last month ....... we have over 85% equity in our house ......... they still treated me like a leaper and the misses who works for the NHS had to provide proof of all her hours, extra payments etc....

We got the money , but it was tough. Our borrowings now are 1.5 x our combined incomes

 

[plugsandsparks]

I am Ltd, vat reg, 2 directors/shareholders with two classes of shares to allow an asymmetric dividend payment schedule.
the choice of salary is very important and your accountant will advise.
I am quite old and have significant NI already in the pot, not bothered about benefits if i cannot work etc etc - so i pay myself (for my own personal reasons ) a very small amount and well below the lower earnings limit for NI. As a young person i (check with accountant) suggest you may wish to pay at least just above the lower earnings limit for NI so you build up your contributions for pension and other benefits.
At the end of the year because you have paid yourself so little you will generate (hopefully) a healthy profit. Well 19% of this is due to be paid as corporation tax, the rest is available as dividend or retained profit.
If you decide to withdraw money as dividend you will first use up your remaining personal allowance, then you use up the dividend allowance and finally you start to pay the dividend tax at the appropriate rate which is 7.5% for basic rate tax payers.
Of course if you pay yourself a healthy company pension this is free of both CT and dividend tax.
An accountant will look at the overall situation that is unique to you and your other shareholder and come up with a plan to pay the most appropriate tax, i.e. the lowest legally allowed, you can of course pay more if you are embarrassed by how little tax you pay but thats up to you and your accountant to juggle the moral dilemna.

I am a bit of a geek wrt this stuff and do my own accounts, pension, self assessment etc etc but my own situation is almost unique and will not suit all.
hope this gives a flavour of the possibilities.
cheers P&S

 

[Squid]

We remortaged last month ....... we have over 85% equity in our house ......... they still treated me like a leaper and the misses who works for the NHS had to provide proof of all her hours, extra payments etc....

We got the money , but it was tough. Our borrowings now are 1.5 x our combined incomes

Jeeez a £500k mortgage.......... ;o)))))))

 

[Squid]

I am Ltd, vat reg, 2 directors/shareholders with two classes of shares to allow an asymmetric dividend payment schedule.
the choice of salary is very important and your accountant will advise.
I am quite old and have significant NI already in the pot, not bothered about benefits if i cannot work etc etc - so i pay myself (for my own personal reasons ) a very small amount and well below the lower earnings limit for NI. As a young person i (check with accountant) suggest you may wish to pay at least just above the lower earnings limit for NI so you build up your contributions for pension and other benefits.
At the end of the year because you have paid yourself so little you will generate (hopefully) a healthy profit. Well 19% of this is due to be paid as corporation tax, the rest is available as dividend or retained profit.
If you decide to withdraw money as dividend you will first use up your remaining personal allowance, then you use up the dividend allowance and finally you start to pay the dividend tax at the appropriate rate which is 7.5% for basic rate tax payers.
Of course if you pay yourself a healthy company pension this is free of both CT and dividend tax.
An accountant will look at the overall situation that is unique to you and your other shareholder and come up with a plan to pay the most appropriate tax, i.e. the lowest legally allowed, you can of course pay more if you are embarrassed by how little tax you pay but thats up to you and your accountant to juggle the moral dilemna.

I am a bit of a geek wrt this stuff and do my own accounts, pension, self assessment etc etc but my own situation is almost unique and will not suit all.
hope this gives a flavour of the possibilities.
cheers P&S

As above but my accountant issued 12 shares one for every month and did a rolling calculation with income and expenses I had a DD setup for the minimum salary then I would be informed of how much I could transfer from the business to my personal account in expenses and dividends, the expenses aren't taxable so i claimed for travel, breakfast and lunch, you need a printer/computer for business use expense it stationary and stamps stock up before Christmas expense it Christmas cards as well, I even claimed for a Christmas tree and a couple of bikes over the years.

 

[Squid]

Forgot to add an office in your house allows you a % to claim for bills, cleaner, window cleaner.

 

[Octopus]

Jeeez a £500k mortgage.......... ;o)))))))

hum. Have you borrowed Diane Abbott's calculator?

 

[Squid]

hum. Have you borrowed Diane Abbott's calculator?

You mean its to low!?

I thought you where a £150k per year electrician looks like you are further up the ladder than I thought ;o))))))

 

[Octopus]

You mean its to low!?

I thought you where a £150k per year electrician looks like you are further up the ladder than I thought ;o))))))

Ha ha ha - so far from the truth.

 

[Octopus]

You mean its to low!?

I thought you where a £150k per year electrician looks like you are further up the ladder than I thought ;o))))))

So £150K divided by 42 weeks @ 40 hours per week is about £95 per hour

If I could do £95 per hour , I would do a 2 day week!

 

[Squid]

Stick to a 35 hour week and don't work yourself in to a grave, I just love young rich widows.......... ;o))))))))

 

[Leesparkykent]

Forgot to add an office in your house allows you a % to claim for bills, cleaner, window cleaner.

Only £4 a week IIRC.

 

[Squid]

Every £ is a prisoner.........

 

[derek]

Only £4 a week IIRC.

You can claim more than £4 per week for use of home as office, the £4 figure is the amount HMRC will accept without any proof being required and has those who use their kitchen table to do their paperwork in mind.
You could read the various BIMs in the HMRC website offering guidance on this, BIM47825 - Business Income Manual - HMRC internal manual - GOV.UK - https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim47825 would offer some examples especially if you have a room as a dedicated office.
You should check the possible consequences of Capital Gains Tax on business use on a property you own and then might sell at a later date, I was led to believe that this can be mitigated by allowing a small percentage (of the office or whatever else you are claiming for) for occasional private use, so for example my office could also be used to occasionally read a book in peace.

I would suggest you don't believe anything I have said and consult with a qualified chartered accountant.

 

[lurch]

amazing that people do not do there home work and start asking questions after the event. . have a look at this and google around abit. The internet is a valuable resource if used properly Sole Trader vs. Limited Company | Companies MadeSimple - https://www.companiesmadesimple.com/sole-trader-v-limited-company.html

 

[Octopus]

amazing that people do not do there home work and start asking questions after the event. . have a look at this and google around abit. The internet is a valuable resource if used properly Sole Trader vs. Limited Company | Companies MadeSimple - https://www.companiesmadesimple.com/sole-trader-v-limited-company.html

I've just used the calculator on that link - sure it suggests I would be slightly better off, but makes no allowance, as far as can see, for the additional time and / accountancy costs you will have to allow for or time that you will need to spend doing more work in the evenings.

Being SE means 1 return per year.

Ltd or VAT reg means much more to do ....................

 

[lurch]

I've just used the calculator on that link - sure it suggests I would be slightly better off, but makes no allowance, as far as can see, for the additional time and / accountancy costs you will have to allow for or time that you will need to spend doing more work in the evenings.

Being SE means 1 return per year.

Ltd or VAT reg means much more to do ....................

Yep agreed...... but one valuable element that you can' put a figure on is limited liabiliy.

 

[Leesparkykent]

You can claim more than £4 per week for use of home as office, the £4 figure is the amount HMRC will accept without any proof being required and has those who use their kitchen table to do their paperwork in mind.
You could read the various BIMs in the HMRC website offering guidance on this, BIM47825 - Business Income Manual - HMRC internal manual - GOV.UK - https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim47825 would offer some examples especially if you have a room as a dedicated office.
You should check the possible consequences of Capital Gains Tax on business use on a property you own and then might sell at a later date, I was led to believe that this can be mitigated by allowing a small percentage (of the office or whatever else you are claiming for) for occasional private use, so for example my office could also be used to occasionally read a book in peace.

I would suggest you don't believe anything I have said and consult with a qualified chartered accountant.

I have a charted accountant that deals with the lot and I don't operate from a spare room in the house, I have a seperate premises.

 

[Pete E]

I've just used the calculator on that link - sure it suggests I would be slightly better off, but makes no allowance, as far as can see, for the additional time and / accountancy costs you will have to allow for or time that you will need to spend doing more work in the evenings.

Being SE means 1 return per year.

Ltd or VAT reg means much more to do ....................

I think the other area that needs to be considered is if you go bust or if you are sued for a sum of money and end up with court orders and bailiffs chasing you...

As I understand it, if you operate as a Ltd Company, the bailiffs can't take personal possessions to pay debts but some one opereating as a sole trader could lose their car or house ect.???

 

[leo79]

If you're concerned about getting a mortgage then I suggest using a financial advisor.
I struggled like mad when I went from sole trader to Ltd company as all the banks I spoke to wouldn't consider my sole trader accounts (including the bank who I already had an existing mortgage with).
Just so happened I did a job for an FA whilst this was going on, within 3 weeks he's secured us a mortgage with The Coventry Building Society. Yes it cost us £300, but well worth it in my book.