Tax Question - LTD Company

MF2015

If someone could help with a quick tax question that would be great.

I'm a higher rate tax payer and will be starting a limited company along side my current position.

Myself and my wife will be directors.

How much tax would I pay on profits, I'm guessing 40% on any pay but what about dividends, how can I extract the cash in the most tax efficient way?

My wife has a little left before she is in the higher tax bracket and will make use of this but not sure if I need to pay us a wage, we dont need it, or if it can all be in dividends and the liabilities on this.

Many thanks.

paddyrg

Speak to your accountant/tax advisor.

You would pay corporation tax on profits, maybe pay yourself and take dividends at the associated rates. Which is best for you will be individual to your circumstances so take advice whilst you find an accountant you'll be happy with for doing your year-end, vat and payroll as required.

MF2015

Thanks, I did a similar thing a few years ago and operated as a sole trader but an addition to the family came along and I stopped trading to spend time with the little one.

I don't have an accountant to ask, people have mentioned I may be better off as LTD, hence asking for the figures I would need to pay for corporation tax, income tax and dividends to see if it makes sense or if sole trader would be better.

paddyrg

Actually in financial terms you may not find massive savings, the tax rates applied pretty much make it a wash, although a few NI payments may be saved. Ltd company has other advantages around liabilities etc., but the years of big tax savings were adjusted to remove abuse. In fact, depending on the cashflow, you may see less in your pocket through a Ltd company due to the annual tax return being a big job, and the companies house return costing a little money. In all, allowing about a grand a year for accountancy costs, more if you want them to do your vat and salaries too.

InsideInsurance

It is more complicated than that.

The company will pay corporation tax on its profits (20%) and you will pay tax on any salary or dividends you take. Salary is an allowable expense and so it comes off of your profits and taxation on dividends effectively factors in the corporation tax already paid thus avoiding double taxation.

The difference with dividends is avoiding NIC and the ability to share the wealth a little and use up others lower tax rates.

bris

Because your already a higher rate tax payer you would have to pay the difference between the company taxation and your own.

So the company pays corporation tax at 20% then you take a dividend, the dividend would be subject to the difference between the 20% already paid and your higher rate, so there is no cheap money.

Every thing you take over the threshold will be subject to higher rate tax where ever it comes from.

There are of course other benefits of being ltd, but the costs assosiated with a ltd co may outstrip that.

malc_b

bris wrote: »

Because your already a higher rate tax payer you would have to pay the difference between the company taxation and your own.

So the company pays corporation tax at 20% then you take a dividend, the dividend would be subject to the difference between the 20% already paid and your higher rate, so there is no cheap money.

Every thing you take over the threshold will be subject to higher rate tax where ever it comes from.

There are of course other benefits of being ltd, but the costs assosiated with a ltd co may outstrip that.

I believe that dividends are notionally taxed at 10% but with no tax to pay if you are a standard rate tax payer. In other words 40% tax payers have to fork out 30% extra not 20%.

What you could consider is paying into your own SIPP, up to £50k pa for zero salary (per person or director AFAIR). Or leave the money in the company until you run the company full time, or retire, or both. The only issue there would be the rubbish interest rates companies get but if you happy with some risk there is always ratesetter or funding circle. Otherwise 1% is about the best you'll get.

MF2015

malc_b wrote: »

What you could consider is paying into your own SIPP, up to £50k pa for zero salary (per person or director AFAIR). Or leave the money in the company until you run the company full time, or retire, or both. The only issue there would be the rubbish interest rates companies get but if you happy with some risk there is always ratesetter or funding circle. Otherwise 1% is about the best you'll get.

Thanks for the replies everyone.

I think I've cracked it.

I'm going to do the following as a sole trader, pay in to a SIPP up to the maximum (£40000 I believe for 2014/15)

Then pay my wife £149 per week for her office duties, classed as an expense, and take a small wage with anything else left over after.

Based on previous experience 50k pa is possible so should see my right to start with.

If anyone has a better idea I would love to hear, otherwise I'm going to do some reading up on how SIPP's work. I specifically like the idea of the following investments taken from an allowable list;

"Exotic" assets like vintage cars, wine, stamps, and art

I'll pass on the stamps and art though!