Ltd company tax

cpot

Was after a bit of advice. I have set up a limited compay for my earnings will prob expect to earn about £40k per year and want to know how to best reduce my tax. Obviously all the income minus personal allowance and expenses etc will have to have coperation tax taken off.

Can I pay my wife a minimum salary per week that will mean that we do not have to pay tax or NI on her earnings? She is not working at present and does not get any benefits but she does do the accounts for me and organises various aspects of the business. Also the amount that she is paid can it be counted as expenses so that coperation tax does not have to be paid on it?

I will be paying myself dividends with some of the rest of the profits so these will not attract NI and after coperation tax is taken off I shouldnt have any more tax to pay.

Would appreciate any help and advice on this matter.

zygurat789

cpot wrote: »

Was after a bit of advice. I have set up a limited compay for my earnings will prob expect to earn about £40k per year and want to know how to best reduce my tax. Obviously all the income minus personal allowance and expenses etc will have to have coperation tax taken off.

Can I pay my wife a minimum salary per week that will mean that we do not have to pay tax or NI on her earnings? She is not working at present and does not get any benefits but she does do the accounts for me and organises various aspects of the business. Also the amount that she is paid can it be counted as expenses so that coperation tax does not have to be paid on it?

I will be paying myself dividends with some of the rest of the profits so these will not attract NI and after coperation tax is taken off I shouldnt have any more tax to pay.

Would appreciate any help and advice on this matter.

This is highly skilled work for a trusted employee she would be cheap at any price.
You should also make pension provision for both yourself and your wife, even at the expense of paying a bit of PAYE, and, guess what, the pension premiums for a company scheme are all deductable before charging Corporation Tax.
You should also consider your car with regards to b-i-k and a mileage charge.
Always send your Corporation Tax and Companies house forms in on time, the penalties are large.
Are you in any way subject to IR35?

NiceGuyEddie_2

I think you've got confused between income tax and corporation tax.

Companies have no personal allowance (given that they're not people!) and hence the personal allowance does not relate to the payment of corporation tax.

The company is liable to corporation tax on its 'profits chargeable to corporation tax', which will largely consist of your taxable trading profits. This will be the profits per the accounts, adjusted for any disallowable expenses (eg depreciation) or income taxed elsewhere (like dividends received). Please note that dividends paid out by the company to shareholders, eg you, are not allowable expenses - they are a distribution of the profit left once corporation tax has been paid.

With regards to your wife's salary, if she is undertaking work for the company as you say then yes she can become an employee of the company and receive a wage. If you want, you can pay her less than the NI threshold and hence avoid having to pay employer's NICs.

This expense is allowable for tax purposes and hence will reduce your taxable trading profits.

With regards to your income from the salary, unless the dividends you receive and any wage you may also be receiving are under the personal allowance then you will be liable to income tax. Corporation tax paid by the company has no relevance to your income tax liability.

yelf

you have to have go get an accountant

dave2

yelf wrote: »

you have to have go get an accountant

worth repeating!

I suspect the accountant is likely to suggest both you and your wife each take a salary of around £5,500. This uses up most of your personal allowances and puts you in the sweet spot of earning enough to count towards your state pension while not paying NIC.

The rest likely drawn as dividends.

Discussion can get slightly complicated because on the one hand the company is it's own legal person and also pays tax in it's own right. On the other, this is a "personal company" scenario and really you're seeking to minimise the total tax paid by the company, yourself and your wife. To be clear, that means you do not mind increasing the amount of tax the company pays if it means the tax you personally pay is reduced by even more. Often this will mean taking the numbers and working out the "net cash position". This is the amount of money that ends up in your hands after all taxes have been paid.

So for example say taxable profit is £40k. Salary is a tax-deductible expense for the company so if you both take the £5,500 the company will be taxed on £29k @ 20% = £5,800 to be paid by company.

You personally would be taxed on the £5,500 salary plus £29,000 dividends. Assuming you have no other income there is no tax to pay because your total income is within the basic rate band and both salary and dividends have been taxed at source at the basic rate.

Your wife taxable income £5,500, within personal allowance and so again no tax to pay.

Voilà. Gross £40,000 made, £5,800 total tax, net cash position £34,200.

Compare that to paying everything as salary. Has to cost company £40k so gross salary is £36,110 and Employer's NIC (that company pays) is £3,890. Your tax is £5,927, employee NIC is £3,343. Total tax £13,160 and you take home £26,840.

That's a £7,360 saving. So, trust me when I say it's worth getting an accountant

alexs1

cpot wrote: »

Was after a bit of advice. I have set up a limited compay for my earnings will prob expect to earn about £40k per year and want to know how to best reduce my tax.

You ought to consult an accountant. There are numerous tax matters to consider as well as compliance issues. A lot will depend on where your work will come from and how you will carry it out.

johnny_storm

NiceGuyEddie wrote: »

With regards to your income from the salary, unless the dividends you receive and any wage you may also be receiving are under the personal allowance then you will be liable to income tax. Corporation tax paid by the company has no relevance to your income tax liability.

That's incorrect. As long as dividends & salary are less than the 40% threshold for high rate income tax there is no further income tax to pay.

Corporation tax already paid is counted as a "tax credit" against your income tax.

Definitely get an accountant, definitely charge vat on the flat vat scheme.

NiceGuyEddie_2

johnny_storm wrote: »

That's incorrect. As long as dividends & salary are less than the 40% threshold for high rate income tax there is no further income tax to pay.

It's not incorrect if you note that important distinction between 'being liable to income tax' and 'not having any further income tax to pay', which I would consider a fairly fundamental distinction!

You have assumed that the OP's dividends don't push him into the higher rate band, which is fine, but my post was a more general explanation of tax that didn't make reference to figures and hence it's not incorrect to state that income over the personal allowance is liable to income tax...

Money_Grabber13579

The OP says they've set up a Ltd company for their earnings? Is this a Personal Service Company by any chance? If so there's anti-avoidance legislation you should be more concerned about...

Mahmood_Reza

Following on from the comment above, the nature of the business will impact on its tax treatment. First question should be what is the business nature of the company. If selling services then a set of rules called IR35 needs to be considered. I will proceed on the basis that IR35 applies (if selling product then IR35 is not applicable), Stage One: Look at the nature of the relationship between your customers and what you are providing, is it one of (personal) service, i.e. without the company there is an employee/employer relationship, if so IR35 applies. If the relationship is one for services the IR35 will apply.Stage Two If IR35 applies then you will have to apply PAYE to a significant proportion of the companys income and you will pay significantly more tax.