Limited company-what does it mean?

wench90

Hi,

I am a social worker who is thinking of quitting her job and becoming self employed. I have been advised that the best way to do this is to become a limited company. I have been given a few names of companies who can sort this out for me. I'm still a little unsure of the benefits of doing this and also would like to know what the downsides might be. If anyone has any knowledge of limited co.s, any info would be appreciated before i take the plunge.

Cheers

pinkfluffybabe

More information here: http://www.companieshouse.gov.uk/

ukbill69

Downsides they are is paperwork, also paying an accountant and paying fines if your late sending stuff back. But plus side you can pay what ever you like and pay rest in dividends and only pay 19% tax and no national insurance.

RayWolfe

ukbill69 wrote:

Downsides they are is paperwork, also paying an accountant and paying fines if your late sending stuff back. But plus side you can pay what ever you like and pay rest in dividends and only pay 19% tax and no national insurance.

Take this post with a large pinch of salt. If only life were that simple!

ukbill69

It was a very fast post lol, theres tons of things that are hard!

h4nym

Wench

Bill's suggested that there may be some tax benefits, but the paperwork issue is not to be ignored!

It really depends on the risk that you envisage, and your appetite for it! If you're going to be trading - ie buying and selling - and there's a real possibility of making a loss on a (or several!) transactions, then the protection of being limited is probably valuable.

If you're just going to be selling your time as one person / consultant, then there's not a whole bunch of risk there - the only real risk is that you don't earn as much as you expect. In that context, limited liability doesn't really make any sense - apart from one major area - most 'clients' won't accept you consulting to them as a person rather than a company. There's all sorts of laws that begin to grant you employment rights etc. HOWEVER - if you are limited, and only work for one 'employer' at any one time, then there's a serious danger that you'll be caught by the Inland Revenue's IR35 regulations which pretty much eliminate any of the tax benefits that being a limited company offers. IR35 is designed to eliminate tax benefits for those who are really in 'disguised employment' rather than bona fide business people.

You're probably gathering it's more complex than a simple answer! What is your business going to be doing? Let's begin to explore the options in context for ya!

H

Cute_'n'_Quirky

I am looking at being a Limited Company.
Apparently, the first £10K of profit is ignored for tax purposes, along with the first £5K of dividends being free of National Insurance liabilities.

I take it that I would still get my personal allowance on top of this myself?

I have been self-employed in a medical profession for 24 years.
Am now qualified as a Mortgage Adviser and will start work in May.

Cute_'n'_Quirky

This comes from the HMRC site -

Would I have been an employee of my client?
The rules only apply if you would have been an employee of your client, had it not been for the existence of your company or partnership.

If you can answer ‘yes’ to the following questions, you would probably have been an employee of your client for the contract in question and therefore within the new rules.

Do you work set hours, or a given number of hours a week or a month?
Do you have to do the work yourself rather than hire someone else to do the work for you?
Can someone tell you at any time what to do, when to work or how to do the work?
Are you paid by the hour, week or month?
Can you get overtime pay?
Do you work at the premises of the person you work for, or at a place or places he or she decides?
Do you generally work for one client at a time, rather than having a number of contracts?




If you can answer ‘yes’ to the following questions, you would probably not have been an employee of your client and therefore outside the new rules.

Do you have the final say in how you do the work for the client?
Can you make a loss on the contract?
Do you provide the main items of equipment you need to do the job for the client, not just the small tools many employees provide for themselves?
Are you free to hire other people on your own terms to do the work you have taken on?
Do you pay them out of your own pocket?
Do you have to correct unsatisfactory work in your own time and at your own expense?
Do you have a number of customers at the same time?
You will have to think about each contract individually. Some people will find that they have some contracts, which would have been employment and so come within the rules, and others which do not.

WHA

Cute_n_Quirky wrote: »

I am looking at being a Limited Company.
Apparently, the first £10K of profit is ignored for tax purposes, along with the first £5K of dividends being free of National Insurance liabilities.

I take it that I would still get my personal allowance on top of this myself?

I have been self-employed in a medical profession for 24 years.
Am now qualified as a Mortgage Adviser and will start work in May.

You have been very badly misinformed.

Firstly, there is no first £10k of profits tax free - this was abolished a while ago.

Secondly, ALL dividends are free on national insurance, not just the first £5,000.

Thirdly, your personal allowance relates to your personal income, not your company income, and can be applied against any wages that your company pays to you.

You really need to learn more about limited companies and the important legal distinction between the company and yourself before you think any further about forming your own limited company.

As to your subsequent post, you appear to have been looking at HMRC's website for determining whether someone is an employee or self employed, not sure what you were posting that for or what your question is about it.

Cute_'n'_Quirky

Post Number 8 refers to IR35 from the earlier post.

I shall make an appointment to see an accountant in my area re a Company.

I found the Company details on the internet.