Time to go Ltd??

liverpoolcarl

I met with my accountant yesterday (also a friend - he doesn't charge me) and he has advised me to go Ltd, as I am currently a Sole Trader.

Basically I run my business part time, started in 2007 and has gradually got busier and profit has gone up.

I also work fulltime on normal paye. Paye combined with my business income I am fast approaching the higher rate tax bracket.

I have been told to go Ltd, not go on the pay roll of the Ltd company (as I am already on my day job payroll) but take dividends.

Is this a no brainer?

Am I right in saying that as I would be a director of a company I would still have to complete a tax return or is this done away with??

slipp_digby

if an accountant who has seen the figures can see benefit, then take their advice if you trust them. its impossible for us on a forum to know

your dividends will not be taxed below a certain amount and will have a tax credit attached (think its up to 38k income) and above this amount of total income you will pay 25% tax on any dividend income

if you are a director, I think that your tax office will assume that you need to complete a tax return. if you take dividend income you will need to do a self assessment each year and pay any tax due.

of course, there is nothing to say that you have to take the profit via dividends straight away.

you could retain the profit within the company until its advantageous to release it in a tax efficient way e.g. if you reduce your PAYE hours/earnings and increase the dividend payments.

edit: seems sensible not to go on payroll and incur any income tax for you and NI contributions for your ltd

schneckster

An accountant friend of mine, whose firm is a HMRC approved auditor, told me that the Revenue can get a bit suspicious of limited company directors who take dividends but no salary. They told me I should pay myself minimum wage and then take dividends.

Obviously, you can tailor the minimum wage to the hours you think you've worked, but if it looks like you're paying some income tax on money from your company, the spotlight dims a little, you know?

Of course, I'm no accountant, so I'm not going to suggest your's is in the wrong. But it is worth considering and maybe raising with your accountant in case that still holds true (the advice I got is a couple of years old)

Schneckster

slipp_digby

schneckster wrote: »

An accountant friend of mine, whose firm is a HMRC approved auditor, told me that the Revenue can get a bit suspicious of limited company directors who take dividends but no salary. They told me I should pay myself minimum wage and then take dividends.

if you are a director but dont have an employment contract there is no requirement for a director to be paid minimum wage.

what would HMRC be suspicious of? as long as the dividends from the ltd are declared legitimately and documented correctly the OP will have nothing to worry about.

schneckster

I agree, if there's no contract, there's no requirement. But I didn't say there was a requirement. I just said they can get a bit suspicious and I'm just making a point that perhaps you should check that out.

I guess they're suspicious of people earning a salary from a limited company but taking it all as a dividend to avoid income tax, even if the dividends are paid completely legitimately. It's mostly people working as contractors that fall foul of this suspicion, but I'm sure they'd look at anyone taking dividends when they see no income tax coming from the key people in the company.

Schneckster

slipp_digby

schneckster wrote: »

I agree, if there's no contract, there's no requirement. But I didn't say there was a requirement. I just said they can get a bit suspicious and I'm just making a point that perhaps you should check that out.

I guess they're suspicious of people earning a salary from a limited company but taking it all as a dividend to avoid income tax, even if the dividends are paid completely legitimately. It's mostly people working as contractors that fall foul of this suspicion, but I'm sure they'd look at anyone taking dividends when they see no income tax coming from the key people in the company.

Schneckster

ah i see.

i wasn't commenting on my situation only the OPs orginal post. the OP had a PAYE job and would be paying some income tax anyway so i couldnt see any issue.

I do take a salary buts it low enough to avoid income tax and NI contributions. HMRC have no problem with this (in fact seems to be standard advice on tax efficency most accountants give in me experience). perhaps there is something specific for you which made your advise otherwise.