Query before setting up a Ltd company.

nanoos

Hi,

I have found an opportunity to do some freelance work but need to setup a limited company to do so. I am already a high rate tax earner so want to minimise tax ouput. The money wont be much but approx 500 pounds per month (every bit helps). I have the following questions:

when setting up a limited company should i make my wife a diector or/and a shareholder of the company aswell. (She does not work at the moment)?

Is there a minimum as to how much salary i can give myself and my wife from the company?

Am I right in thinking that whatever profit the company makes I will be taxed on this. Would I then be taxed again on the dividends and would it be at the high tax rate seeing as I am already a high tax rate payer.

Also would i need to consider IR35. The work bsically is defined as follows: I can choose the hours I work and will work from my own home using my own equipment. I will have the 1 client assigned to me through an agency that I will pay, and could have more clients if and when they become available.
Please advise it would be greatly appreciated.

Thanks.

cfnc

I think you should first discuss setting up a LTD company with an accountant.

It maybe possible to pay your wife a wage instead of you.

Kirsty

Mary_Hartnell

What is the latest position following the Arctic Systems husband and wife victory?

Pennywise

There is nothing at the moment to stop you making your wife a director/shareholder and paying her instead of you, to use up her allowances.

Your real worry has to be IR35 - the Dragonfly case last year was won by HMRC on the grounds that the end client expected and wanted a particular person to do the work - contracts etc were effectively ignored - it was decided on what the end client said when asked by HMRC.

hangingbasketsofbabylon

To answer the OP's questions in turn

Is there a minimum as to how much salary i can give myself and my wife from the company?

No, but when determining a level of salary for your wife you may wish to consider the LEL for NICs, paying up to the LEL will increase your wife's entitlement to certain state benefits (eg pension), unless she already gets this entitlement through the Home Responsibilites Protection provisions.

I believe that HMRC have put their plans to stamp on 'income sharing' on hold for the time being at least

Am I right in thinking that whatever profit the company makes I will be taxed on this. Would I then be taxed again on the dividends and would it be at the high tax rate seeing as I am already a high tax rate payer.

No, the Ltd Co will be taxed on profits via the wonder that is Corporation Tax, this becomes due 9 (?) months after your accounting period end date.

I think divi's are taxed at a marginal rate given that the Ltd Co has already paid CT. For basic rate tax-payers there is no further liability

Also would i need to consider IR35. The work bsically is defined as follows: I can choose the hours I work and will work from my own home using my own equipment. I will have the 1 client assigned to me through an agency that I will pay, and could have more clients if and when they become available.

Being able to choose your own hours, having more than 1 client and using your own equipment are all pointers to non-employment. However they're not conclusive and, as Pennywise indicates, the 'Commissioners' appear to be taking a different approach to these matters.

If you're able to navigate the spectacular minefield that is IR35 & then decide you're caught by the regulations, then there seems little point paying your wife a salary. In that case you may be better served trying to reduce your tax/NICs liability by paying higher pension contributions.

Lots to consider really (!), as cnfc says, best to see an accountant if you don't have the time/inclination to get up to speed on all this stuff