Setting up a Limited company as single person, help?

nickc25

Hi
I am currently self employed but I have been trying to find out for nearly two weeks about taxes and even the tax office are not helpful, I am sure I would get fined if I did it wrong!

I am thinking of setting up a Limited company on my own. I would be sole director and would employ myself and pay a wage whenever I got money into the company. I would not be employing anyone else, I work from home.

I am trying to find out about tax and National Insurance. I have got the information about setting up and how to do it, it costs £37 in total. But with taxes they said I would start to pay taxes whenever the wage I pay myself goes over a certain amount, same with NI. I have no clue if I would earn £5000 per year or £20,000 per year at the moment as it is a new area for me, I have been self employed for years in the travel industry but now I have setup a villa rentals website where I charge villa owners a yearly fee to advertise and I am also going into web designing.

I would not be needing stock or anything and any money the company earnt I would pay myself. I was first worried If I legally had to pay myself a minimum wage but that is not the case.

I just want to know about taxes, would I be double taxed? IE does the company get taxed as well as me? If so then it is better being self employed? Last year as a travel agent I earnt less than £5000 which Is why I want to do this, I started doing it In feb and have already done a decent amount in sales. I just do not know about the tax, I understand I would have to pay taxes as an employee as I would be employed by the company, but just trying to see if the company itself would get taxed. The main reason for wanting to be a limited company is a liability issue and also it is more credible if people are dealing with a limited company rather than just some person.

Anyone has an idea?

Thanks

orangeslimes

The company itself would pay corporation tax.
really I think you need to find yourself an accountant!!!

Horace

You would have to pay tax and NI on your wage and the company would have to pay corporation tax. I think you need to maybe speak to a solicitor and get yourself an accountant.

Why not wait for a while and work as self employed and when business picks up then switch to limited status. If you are worried about the insurance side of things - do you need public liability insurance and more importantly professional indemnity insurance to cover you for giving bad advice?

Have a chat with business link and with your local chamber of commerce - both will give you free advice.

nickc25

Probably worth me sticking to being self employed status then, thanks.

Horace

Definitely stick with sole trader status for a while when your business starts earning too much cash then switch to being a limited company.

tuggy

Yes you would be taxed twice effectively. the company pays corporation tax, and also NI contributions..and you pay tax and NI yourself..

Treading_Water

Hi
Just to clear up a few points here.
The company pays Corporation tax on all profits - but if you pay yourself a wage, that is deducted from profits. So therefore not double taxation.
The normal practice is for the director to pay himself a mimimal wage only - which keeps the tax and Ni contributions either below the tax and ni threshold, or a little bit more - but only really enough to hit the tax and Ni thresholds. In order to preserve any built up Ni allowances mainly (I think, although not my speciality).
Should you then (hopefully) get to where the company is making good profits, you would maintain the same wage levels, but pay yourself dividends.
Dividends can only be paid out of declared and taxed profits, and as tax has already been paid on them there is no further tax (or NI - the big bonus) to pay on them unless the declared dividend takes you into the higher rate tax bracket.
For most Company directors whose companies are earning a decent profit, the benefit of incorporation outway the costs. But as you are at the present you may be better off as you are. (Couldn't say without more information.)

isplumm

Hi,

As someone who runs their own limited company, I have done the following:

1. Pay myself £7500 a year - so that I am covered by NI & PAYE. As Treading Water says this is done to keep any NI allowances up,
2. Pay dividends upto the limit of the higher tax band (so I keep myself under the 40% bracket),
3. Charge VAT, but am on the VAT flat rate scheme, so don't need to collect VAT reciepts, etc,
4. Pay Corporation tax,
5. Claim expenses for mileage when travelling to clients.

Mark

nickc25

isplumm wrote: »

Hi,

As someone who runs their own limited company, I have done the following:

1. Pay myself £7500 a year - so that I am covered by NI & PAYE. As Treading Water says this is done to keep any NI allowances up,
2. Pay dividends upto the limit of the higher tax band (so I keep myself under the 40% bracket),
3. Charge VAT, but am on the VAT flat rate scheme, so don't need to collect VAT reciepts, etc,
4. Pay Corporation tax,
5. Claim expenses for mileage when travelling to clients.

Mark

Are you on your own Mark like I would be? I basically do not want to be worse off than I am at the moment. I probably will stick to being self employed if it means paying double tax and national insurance.

It depends on how my new website goes, I might earn £5k a year or £25k a year, I just am not sure how things will go really. I was thinking maybe setup as a Ltd company so that it would look better and also be better for taxation but it looks like the tax part of it is worse.

isplumm

Hi,

I am on my own, but maybe in a different situation to you. I work in IT as project manager.

You aren't going to pay double tax / NI, but with your potential earnings, I would do as others suggest & keep yourself as a sole trader for the time being. As a limited company you would pay corporation tax (I think it is 20-21%) on your profits before tax - expenses like salary / NI / accountant fees / travel / website costs are deducted from yur profit before tax, so you don't pay corporation tax on those expenses.

I think if you look at the HMRC website it has some good advice about setting a business ... have you also talked to the tax office?

Be aware that I am NOT an accountant, so do check out what I am saying, BEFORE deciding your next steps.


Mark

Treading_Water

Hi
As mentioned before, there is no double taxation!!!
The difference is:-
As a sole trader you will pay 20% tax on all profitable income over your personal allowance. If you incorporate you will pay 21% Corporation tax on profits.(You pay yourself wages up to your personal allowance, which are then not taxed and deducted before the calculation of taxable profits.
As a sole trader you also pay class 2 Nis of £2.40 per week and Class 4 Nis of 8% on profits over £5715. If you incorporate any further profits are paid as dividends, which unless they take you into the higher rate band, are not subjesct to further taxation and are not liable to income tax.
The only higher costs are the admin and accountancy charges, which unless you are only making minimal profits are easily offset by the savings above. a decent accountant can also be worth their weight in gold savings made through taxation planning, plus reduced hassle and stress.
Obviously the choice is yours, but don't get confused by this double taxation idea.