Unsure if to open a Ltd company - any advice appreciated

Xeorix

As a quick overview, I currently work full-time as an employee. My salary puts me just under the 40% tax bracket.

Back in August I started do a bit of Amazon Affiliate work on the site and within 1 month, out of nowhere, I started making considerable money. I've kept track of my expenses, however all earnings so far have been paid by cheque in my name. I've banked one of them into my personal account as its still under the 40% threshold.

I've now received another cheque which will push me into the 40% bracket but hasn't been banked.. Now, Im still continuing with my affiliate work on the side, but I'm only expecting a few hundred every month (if that) at the moment.

I've tried contacting accountants, but since its self assessment peak, nobody can deal with me until February. So my questions are (and potential answers)

1) As I am an affiliate company, I sell nothing. I simply make money from referring people to various websites. With this in mind, can I apply for to be VAT registered, and claim the VAT back off my supplies (Servers, Hosting, Content, SEO etc) and can I do this with expenses made from my personal account prior to forming a business?

2) Any income I receive that has yet to be banked, can this be left until the business has been registered, and then banked into the business and only pay 20% corp tax, or does it need to go through my personal account with 40% personal tax due to it being earned before the company was registered?

3) For what I am doing, is it worth me registering a Ltd company and VAT registered? The main reasons I am doing it are:

• Potential to claim VAT back on expenses
• Only pay 20% corporation tax
• Can take £5k dividends tax free from April, and any additional dividends work out the same as me paying 40% personal tax

motorguy

Xeorix wrote: »

As a quick overview, I currently work full-time as an employee. My salary puts me just under the 40% tax bracket.

Back in August I started do a bit of Amazon Affiliate work on the site and within 1 month, out of nowhere, I started making considerable money. I've kept track of my expenses, however all earnings so far have been paid by cheque in my name. I've banked one of them into my personal account as its still under the 40% threshold.

I've now received another cheque which will push me into the 40% bracket but hasn't been banked.. Now, Im still continuing with my affiliate work on the side, but I'm only expecting a few hundred every month (if that) at the moment.

I've tried contacting accountants, but since its self assessment peak, nobody can deal with me until February. So my questions are (and potential answers)

1) As I am an affiliate company, I sell nothing. I simply make money from referring people to various websites. With this in mind, can I apply for to be VAT registered, and claim the VAT back off my supplies (Servers, Hosting, Content, SEO etc) and can I do this with expenses made from my personal account prior to forming a business?

2) Any income I receive that has yet to be banked, can this be left until the business has been registered, and then banked into the business and only pay 20% corp tax, or does it need to go through my personal account with 40% personal tax due to it being earned before the company was registered?

3) For what I am doing, is it worth me registering a Ltd company and VAT registered? The main reasons I am doing it are:

• Potential to claim VAT back on expenses
• Only pay 20% corporation tax
• Can take £5k dividends tax free from April, and any additional dividends work out the same as me paying 40% personal tax

Hmm..

I would avoid VAT registration as long as you can - i think from memory your turnover needs to be over £84,000 over a 12 month period for you to "need" to register. VAT registration effectively takes 1/6th out of your profit margin.

You will most likely need an accountant, so budget in fees for that. Company accounts cost £1000-£1200 per year. Self employed accounts maybe £600.

Depends on how much you think you will make - it could work out cheaper just declaring the extra income but using an accountant to ensure you're claiming back what you can against your tax bill.

CKhalvashi

If OP has the intention of letting the money pile up until they're not in the 40% tax bracket, then it seems a good idea. He/she can take (I think) £5000 out next year without paying tax on the dividends, which may be beneficial.

If it's going to be taken out as earned, then there's probably a lot less point.

Xeorix

motorguy wrote: »

Hmm..

I would avoid VAT registration as long as you can - i think from memory your turnover needs to be over £84,000 over a 12 month period for you to "need" to register. VAT registration effectively takes 1/6th out of your profit margin.

You will most likely need an accountant, so budget in fees for that. Company accounts cost £1000-£1200 per year. Self employed accounts maybe £600.

Depends on how much you think you will make - it could work out cheaper just declaring the extra income but using an accountant to ensure you're claiming back what you can against your tax bill.

How would VAT registration take 1/6th out of my profit margin?
If I was selling my services, then yes I would have to add 20% onto my prices, but if I was reselling items, I could claim the VAT back on the items then and take the 20% off the end price, effectively keeping it the same.
Since I'm not selling anything though, I have nothing to add VAT onto.

CKhalvashi wrote: »

If OP has the intention of letting the money pile up until they're not in the 40% tax bracket, then it seems a good idea. He/she can take (I think) £5000 out next year without paying tax on the dividends, which may be beneficial.

If it's going to be taken out as earned, then there's probably a lot less point.

I want to pile the money up to reinvest some of it. By doing this, I take 20% cut, rather than 40% cut due to personal allowances.
Like you say, I can withdraw £5k dividends tax free, so it's essentially saving me a grand or so. I wouldn't be taking a salary out of the business, only dividends.
Even if I wanted to withdraw all the revenue from the business in 5 months time, the total tax (Corp + Dividend Tax) totals up to a total of 40% loss anyway

zenmaster

You are so wide of the mark that it's unbelievable.

Xeorix wrote: »

How would VAT registration take 1/6th out of my profit margin?
If I was selling my services, then yes I would have to add 20% onto my prices ...

But you are selling your services, as an affiliate marketer.

You have negotiated (ie. been offered and accepted) a price for those services.

If you register for VAT you then have one of two options

1. Renegotiate for a 20% higher fee (not going to happen)
2. Accept that the current fee is now VAT inclusive and take the hit, along with the increased admin time, and hand over a sizeable chunk of your income to HMRC.

Xeorix wrote: »

... but if I was reselling items, I could claim the VAT back on the items then and take the 20% off the end price, effectively keeping it the same.

If you were selling items then you could only reclaim VAT on the cost of producing/acquiring those items, not the full 20% charged.

You have added value to those items by offering them for sale. The clue is in the name - Value Added Tax.

Xeorix wrote: »

Even if I wanted to withdraw all the revenue from the business in 5 months time, the total tax (Corp + Dividend Tax) totals up to a total of 40% loss anyway

Dividends can only be paid out of pre-tax profit. If there is no profit there can be no dividend.

Xeorix

zenmaster wrote: »

But you are selling your services, as an affiliate marketer.

You have negotiated (ie. been offered and accepted) a price for those services.

OK, that makes sense, but lets say I was VAT registered. I host a website, and I point people to Amazon USA. For arguments sake, lets say the affiliate revenue generated from Amazon was £20k pa.

Where is the VAT added?
EDIT:

OK, I think it's clicked.
If I earn £20k from affiliate revenue from Amazon USA, that falls out of scope of VAT so I would just pay £4k Corp Tax.

Regarding the VAT, if I spend say £2k pa on hosting, adverts, SEO services, be them from outside or inside the UK then thats my taxable supply. My question here though is, my VAT would essentially be £400, however can I claim that back as taxable supplies, or do I have to take a hit of £400 as I'm not passing the VAT onto customers?

CKhalvashi

Xeorix wrote: »

OK, that makes sense, but lets say I was VAT registered. I host a website, and I point people to Amazon USA. For arguments sake, lets say the affiliate revenue generated from Amazon was £20k pa.

Where is the VAT added?
EDIT:

OK, I think it's clicked.
If I earn £20k from affiliate revenue from Amazon USA, that falls out of scope of VAT so I would just pay £4k Corp Tax.

Regarding the VAT, if I spend say £2k pa on hosting, adverts, SEO services, be them from outside or inside the UK then thats my taxable supply. My question here though is, my VAT would essentially be £400, however can I claim that back as taxable supplies, or do I have to take a hit of £400 as I'm not passing the VAT onto customers?

You can reclaim it if VAT registered, I believe as long as 100% of your turnover isn't outside the scope of VAT.

Depending on where you advertise, it possibly wouldn't be 20% VAT in that case. I know of at least one large company that runs their EU marketing through Ireland, and others have probably followed suit.