Advice on setting up a Limited Company

stormmarketing

Morning All

I am after some advice with regards to setting up a Limited company, I am in the process of taking over a sole trading enterprise not of my own and running the company limited.

I have read all kinds of things on the Internet and clarification is pretty hard to find as there are many conflicting stories....

Anyway My story....

I am currently a full-time contracted worker who is currently paid a salary & bonus scheme which equates to around 18-19,000 per year.

Now when I go limited with my new venture I will still be working in full-time employment as above but working on my company during my own leisure time - the company I am setting up will easily hit around 150-200,000 in turnover in its first 12 months.

I will have two self employed employees running the show during my day duties who I trust and have great experience within the industry..

My question now is that as I am sole director of my company, with my workers being self employed this obviously allows me to pay them per invoice received for work done and that they pay their own NAtional Insurance/Tax.

However, when it comes to me - what should I do??

I currently get on reasonable well with my current salary- I understand that if i pay myself a 'wage' from the limited company that i would have to pay tax, national insurance and employers NI

how would this affect the current tax etc. that i pay on my day job??

also - would I be best suited to paying myself a dividends every 6 months from the company instead of wages - avoiding the NI contributions but make sure I do not earn more than 50k combined with my other job i.e. take 2 sets of dividends per year of say 10k

so I would earn 20k from my business and say 20k from my day job = 40k per year??

What is the best and legal solution?

Also I would be right in that if can claim back expenses throughout the year via my company i.e. paying for a web domain on my personal card then taking that money out of the business to cover the expense??

I am hoping to have the company set-up before the end of this month - just deciding what formations company to use... am i right its around 30 pounds?

Elaine_Wilson

There are a lot of points in your question. You probably ought to talk to an accountant so that all the details of your circumstances can be taken into account but here's my view on things.

First, are you sure you really want to trade through a limited company? As you have seen, there is a lot more red tape involved. Could well be a good idea, though, in view of the anticipated turnover.

As for the formation I can't help. The agent I use charges over £100 but I feel I get value for money there. I think your £30 figure is correct.

You will soon breach the VAT registration limit so need to be sure you know all about that. If you are confident the business will perform as you think it would make sense to consider registering for VAT from the outset.

You need to be careful with the subcontractors you are using to run the business. Make sure that the terms they work under truly reflect self employment.

You should probably pay a salary of about £5,700 a year. You will have to pay 20% tax on that but it is a deductible expense from the company's point of view so the corporation tax will reduce by a similar amount. Also, you will not have to pay national insurance at that level but will accrue entitlements to the second state pension based on a salary of about £10,000. This may be changed in the near future but it is still a reasonable strategy.

Any other profits (after deducting corporation tax payable, should be paid as a dividend up to the point where your total income (including the grossed up dividend) is just below the higher rate band. Don't forget that dividends can only be paid out of after tax profits earned.l

Your salary in this company should have no effect on the tax and NI on your present job. Just make sure you fill in a P46 when you start your directorship and tell HMRC you will be using a BR code.

Expenses - it is best if these can be paid from the company's account direct to the supplier. But if you do pay for something personally you can just claim this form your company. Be aware, though, that apart from things like petrol included in a mileage claim, you can only reclaim input tax VAT if the supplier is contracting with the company and not yourself.

Chinkle

See an accountant who will help you set up and structure your company in the best way, taking into account you will remain working full-time PAYE elsewhere.

As previous poster said, be very careful about the people you take on - you called them self-employed employees which is a contradiction in itself! If they acting as sole-traders and the inland revenue suspects they are disguised employees then you will be liable for paying any employers NI and tax that is due. Better for they themselves to set up as ltd companies and then you ensure your dealings with them don't fall foul of IR35.

dave2

Go see an accountant. You'll probably need to get one anyway for filing statutory accounts and doing the company tax. The advice on this stuff, I doubt he'll charge much for yet there's a lot of value in professional face-to-face advice at this stage.

Not sure I'd go for any salary since you're covering your NIC and utilising personal allowance through your employment income, but there's various points to consider.

Remember divs are paid NET of tax at the dividend rate so need to gross up *100/90 for the taxable amount.

"two self employed employees running the show" - big red "IR35" flag waving at me here. This is an important threat you need to understand from a face-to-face with an accountant or legal adviser.

Accountant can sort the formations for you too.

stormmarketing

I will seek the advice on an accountant...

I should not use the word employees.... I will have my shop shut and sub-contract work to two local lads I know whom are self employed people....

I am more focused on what to do regarding my own wage... Do i pay anything i.e. tax or any other on dividends??

so basically If I make 100,000 profit i pay the corporation tax say 22% i.e. 22,000 then if i decide to pay myself a dividend of say 10,000 out of the remaining.... I wont pay anything out on that dividend??

hopefulfooluk

I suspect - or rather hope - you have spoken to an accountant already to confirm this but:

100k operating profit after paying yourself a salary would work out at 20% corp tax at the current, small business rate, so 20k. A 10k dividend would be taxed at 10% BUT if your total income INCLUDING dividend income stays below the 40% tax threshold, the dividend would come with an attached tax credit so effectively you wouldn't pay any tax on the dividend at all.

This is NOT the case if your total income pushes you into the 40% bracket so as others have said, speak to an accountant to confirm what would be best for your personal circumstances.

chrismac1

If your accountant can't save you the first year's fees in terms of:

1. Good advice on the structure including whether ot go limited.
2. Tax efficient remuneration and potentially pension contributions.
3. Advice on the employment status of the folk you say are subbies but your post strongly indicates "false self-employment"
4. The ideal time for VAT registration and making sure you claim back all the VAT on spends before that date tha you can claim back.

And probably a shedload more stuff that you'd start to think about on a deeper review than a website forum - then hire a different accountant!!!

mostlycheerful

Many people use agents for all sorts of things including incorporation but if you want to get it done without the usual delay of weeks and the usual costs of £60-200 then you can easily do it yourself a lot faster for £20.

So one of the first steps is choosing the name and checking if it’s already in use or was in use by a now defunct company and if there are similar names that you wouldn’t want to be confused with, which you do by looking it up on the companies house site www.companieshouse.gov.uk

Also familiarise yourself with the process by studying the site and in particular the faqs. It’s not particularly difficult or complicated but there are a few things that you have to do and get right.

Next stage are the companies house forms which you can download off their site or request to have posted to you. You also need Memorandum and Articles of Association which you can download from the Companies House site or you can buy them for about a fiver in legal stationers or you can simply amend and photocopy an old one off a friend or from anywhere, which Companies House are happy to accept, or you can download a free one off the net. They’re standard and most of them will probably suit your purpose but also they vary a bit so do a bit of research to decide what you want or need in yours. If you use the Companies House articles without amending them you don’t need to send them to Companies House.

Then you get a commissioner of oaths to take your oath in which you state that you are you, and free law centres offer this service for free and it takes a few minutes.

Then at some point you have to decide about your share certificates and what you want to do. A lot of people start with 100 £1 shares but you can do anything you want and there is some choice to consider so do some research and look on the net and ask some people who have companies what they do and why and that will inform your thinking and decision making.

And that’s pretty much it.

Alternatively, with agents and off the shelf ready named companies they generally take several weeks to get round to it and happily keep you waiting despite the fact that it’s only a tiny bit of low grade office admin. And with off the shelf ready named companies unless you want to use the name, which you might do but probably not, you have to apply to change the name which adds extra unnecessary complication, time and money. And sometimes they charge you money for a metal stamp with your company name on it for stamping paper work and they try to imply that you need it, so, yeah, if you want such a thing, then sure, but in practise it’s rarely used and for most people it’s just a waste of money.

A couple of other points to bear in mind if this is your first limited company is that if you want to you can have various trading names for the same one limited company. So, for instance, you can have Joe Cooper Computers and Joe Cooper Graphic Design and Flowers Rave Organisation all trading via the one limited company called Good Works London Ltd. So the trading name goes at the top of the letter head and the Ltd Co details at the bottom. Or whatever you want. But you are supposed to show the Ltd Co details on all paperwork and adverts and not just the trading name(s) on their own.

However, alternatively, if you have multiple identities or brands you might decide that it would be better to have them separated each on their own limited company rather than lumped in together which may give rise to accounting complications and other implications.

Most sole directors are also the company secretary but you can appoint someone else to be the sec if you want. The company secretary is responsible for filing the annual return to Companies House and, of course, they generate the return from the data supplied to them by the director(s).

If selling shares in a small company then a common practise is to have the restriction that they can only be sold back to the company so that you can control who has them. But you don’t have to have this restriction if for some reason you don’t want to.

If selling shares then there are various controlling quantities such as 30%, 49%, 51%, 90% etc and they have various meanings in various circumstances so do some research about this as well if going down this route.

Hope this is of use. Good luck.

chrismac1

The sheer length of the post by mostlycheerful should tell you something about the "not difficult or complicated" nature of running a limited company. See my website and many others for more details, he has not even mentioned opening board minutes or dividends which are pretty basic but a Companies Act requirement. A decent accountant will have this company set up properly within days not weeks, and will make sure you are Companies Act compliant.

Given the size of your company and the issues you've raised, unless you're going to acquaint yourself with the Companies Act you'd be nuts to do it yourself - and please see lots of my other posts on other issues where I say "you don't need an accountant" or similar. I have 2 clients who started their companies off in the way mostlycheerful suggests and between them they have the following problems, which I am sorting out - but of course this costs more:

1. Share capital of £3 because there were 3 of them - but then one left, so new shares to issue because you can't own one and a half share. An accountant would not have said "£3 share cap".
2. Overdrawn directors loan accounts with a benefit in kind to pay tax on, luckily cleared in time to avoid paying extra corporation tax on top.
3. Illegal dividends paid.
4. No registers being maintained.
5. No minutes being kept of board meetings.

To sum up, a right mess.

Hermin

There is no local newspaper advert though this is a great idea . You have to learn what's exactely going on in different businesses. This is a long period and you have to persuade yourself to be patient to do that. In this period, you would meet many elites in different fields. You can learn mucn from them.

mostlycheerful

chrismac1
“1. Share capital of £3 because there were 3 of them - but then one left, so new shares to issue because you can't own one and a half share. An accountant would not have said "£3 share cap".
2. Overdrawn directors loan accounts with a benefit in kind to pay tax on, luckily cleared in time to avoid paying extra corporation tax on top.
3. Illegal dividends paid.
4. No registers being maintained.
5. No minutes being kept of board meetings.

To sum up, a right mess."

Oh dear, so you spend your time dealing with thickie ignorami, flapping about and making a pig’s ear of earning their living. Some of us have evolved past that stage. Pip pip!