Becoming a LTD Company

gazfocus

I currently run a web design & hosting business with my wife and we are in the process of moving into a commercial office. The business is doing well and although I'm not great with tax returns, etc, we're managing well.

Anyway, the subject has come up of whether or not we should consider becoming a limited company and we're just looking for some advice really.

What are the key benefits of becoming a LTD company?
What sort of paperwork is involved in running a LTD company?

We don't have any debts against the business and currently don't take any money out of the business other than to pay the business expenses such as servers/rent for the office/etc.

Horace

An accountant can help you with your paperwork and doing your returns.

I know that it costs little to register a company with Companies House. I used the formation agent recommended by my accountant and it cost me about £17. I set up a Ltd company to protect a business name, however, I am also a sole trader.

As I understand it, if I trade as the Ltd company then I would have to pay dividends, I would have to pay corporation tax too. Any staff I take on would have to be paid and I would have to pay their tax and NI (this would be the same if I took on an employee as a sole trader). There is limited liability with a company too. You have to submit audited accounts to Companies House too.

The best place to start with your accountant because he/she is in the best position to advise you on a) what you need to do to set up as a limited company b) tell you about limited companies and what is expected of you.

chalkie99

Key Benefits

I would say:

1) "It does what it says on the tin" i.e. it limits your liability so that if, for example, a customer decided to sue you for every penny because of a fault in your work then the worst that could happen is they could only get your business assets, not your personal wealth such as the family home, etc.

2) It can make you look a little more professional in the eyes of bigger businesses and therefore, possibly, gain you better customers.

3) Financially, it can be beneficial if your earnings are high enough as you can pay yourselves through dividends which do not attract National Insurance charges.

Accountants charges will be a little higher though as the paperwork is a bit more complicated, for example, you have to submit returns to Companies House as well as HMRC.

Premier_2

Horace wrote: »

...You have to submit audited accounts to Companies House too....

They don't have to be audited for most small companies

InsideInsurance

Horace wrote: »

As I understand it, if I trade as the Ltd company then I would have to pay dividends, I would have to pay corporation tax too.

You dont have to pay dividends if you dont want to but given you are taxed lower on dividends and you have a second tax free allowance you'll find that this is one of the key benefits in that you take a very low salary, just enough to keep your NI contributions up, and then take the rest as dividends.

Corporation tax only has to be paid on profit of cause.

chalkie99

InsideInsurance wrote: »

You dont have to pay dividends if you dont want to but given you are taxed lower on dividends and you have a second tax free allowance you'll find that this is one of the key benefits in that you take a very low salary, just enough to keep your NI contributions up, and then take the rest as dividends.

Corporation tax only has to be paid on profit of cause.

You are not taxed lower on dividends and you do not get a second tax free allowance.

As a self employed person you get the standard tax free allowance and pay income tax on your profits over that. You also pay National Insurance at 12% over £139 pw.

As a Ltd you get your tax free allowance in the same way (through your directors salary) but the usual procedure is to pay yourself just below the NI level so that you still accrue the benefit but do not actually pay any contributions.

The company then pays 20% Corporation Tax on it's profits (after your wages and all other expenses have been taken out).

You can then pay yourself a dividend which is, effectively tax free (because the company has already paid the Corporation tax) up to the higher income tax band without paying any National Insurance.