Sole Trader to Limited Company

isplumm

greensalad wrote: »

You can pay yourself a pension, and match it, if you're employed. So that £11k a year your company pays each of you could be swallowed up entirely by pension contributions if you like.

Apologies - don't understand this? Unless the OP is above a certain age how can they pay themselves a pension?

The OP could set up a Directors pension and get the business to pay into that - this is what I do.

One more thing OP - you don't both need to be directors of a LTD to be 50/50 shareholders - I am a director - my wife is a shareholder.

Thanks Mark

Nicky321

isplumm wrote: »

Hi

I am not sure that this advise is correct - my accountant has always advised me against employing my wife - it really depends on what that person is going to do - I would double check with your accountant.

I currently work as a book keeper for my husband while he is Self Employed and he pays me a weekly wage. Our accountant has mentioned making both my husband and myself both Directors of the Limited Company.

Also My husband is nearly 50 and pays into a private pension monthly, although I do not have a private pension in place.

Pennywise

isplumm wrote: »

my accountant has always advised me against employing my wife - it really depends on what that person is going to do - I would double check with your accountant.

Sounds like your accountant is too cautious and scaremongering.

No problem at all in paying your wife £8k or £11k p.a. if they are a director, even if they do relatively little. Pay for directorship is for the role as director, not the hours worked.

Even if not a director, no problem in paying a reasonable going rate for the actual time "worked", such as admin, answering the phone, making travel arrangements, basically as an ad-hoc PA. The going rate can be relatively high due to being haphazard, on-call working, and evening/weekend needs (i.e. things that can't be done during 9-5 because you're out working). Some people suggest as high as £20 per hour due to the "on call" nature.

I've never personally experienced, nor heard of anyone else, any challenge from HMRC for director's payroll or sensible/justified wife's wages. For the latter, as long as you don't take the mickey and try to claim £11k for an hour a week, I think HMRC have very little ground for challenge.

AbbieCadabra

has the position for husband/wife directors been cleared up for the employers NI allowance now? there were some mutterings about this arrangement not qualifying for it from 2016/17, along with single director/no employees.

Nicky321

I am going to see the accountant on Friday about setting up the Ltd Company, however I have been in touch with her via email and asked her about the http://www.cheapaccounting.co.uk/library-2016-directors-salary.php
Her Reply was as follows
"If the company has two shares then you and Derrick can both have dividends and a small salary.
Kelly in the payroll dept sets all this up and does it monthly for you.
So if you take say 2000 per month out of the business you still take it in one amount but it would
consist of 671 salary D 671 salary M and 658 dividend.
Your salary would have to be a reasonable salary for the hours worked ie doing books.So you could maybe take a lower salary
and the dividend would be higher. If you work on £10 ph for the hours worked by you in a month as a guideline.
We draw up the dividends for you."
Kind regards

AbbieCadabra

i've always been of the understanding that as a Director, it doesn't matter what rate per hour you get paid as it doesn't have to be 'fair' & it's not anything to do with the going rate or national minimum wage.

i also thought it was best practice NOT to pay a dividend on a monthly basis as HMRC might view this as a salary as it's a regular payment. dividends are best if paid quarterly/twice yearly perhaps.

this is a pretty good guide for sole trader vs Limited, i think profit needs to be in the region of £30k per year for it to be considered a benefit to go Ltd (purely on the financial side, there other benefits ie. limited liability etc.), but your accountant can confirm this.

edit: additional link, similar info as already said but this one includes a tax calculator to see if it would be tax efficient to go Ltd.

antrobus

Nicky321 wrote: »

antrobus My husband has been self employed for 18 months or so, and I have been using "Accounts & budgeting" software and "Invoice Manager" software. ...

If you are happy doing so, then carry on.

Nicky321 wrote: »

...He already has a van which is solely used for business. Is being a Limited Company much different to a Sole Trader?

A Limited Company is simply a separate legal entity; the law simply pretends that ABC Ltd (for example) is actually a person.

So your new Limited Company will buy the van from your husband.

antrobus

Pennywise wrote: »

Sounds like your accountant is too cautious and scaremongering....

Crumbs almighty! I've never come across an accountant who advised someone against employing their wife.

Very strange, if you ask me.

Pennywise

antrobus wrote: »

Crumbs almighty! I've never come across an accountant who advised someone against employing their wife.

Very strange, if you ask me.

There are some very cautious accountants out there who seem to think they work for HMRC rather than for their clients.

Though, even worse, some training providers employ lecturers who have a similar risk-averse approach. I vividly remember (and have kept the course notes to prove it), one leading lecturer (well know for writing books etc), doing a course for a leading accountancy training provider, who blatantly said that small company owners should pay themselves a proper salary as it was "too dangerous" to pay a small salary made up with dividends. That was nothing to do with IR35, it was an across the board sweeping statement!

I've also been on courses when the speaker has been very aggressive in suggesting employing a wife is a red flag to HMRC and you need proper timesheets, proof that they're being paid a market rate, etc - he suggested keeping copies of similar job descriptions and pay from job adverts!

Yet in 30+ years of practice, I've never once had a tax enquiry/dispute about low pay/high dividends (except for potential IR35 cases) nor about reasonable wife's wages.

So, you have training/course providers being overly negative and risk-averse, which is being passed onto accountants who take their word as gospel!

At the time of the "too dangerous" to pay dividends course, I thought he's just wanting to avoid it becoming too popular as then HMRC may do something, so he was deliberately scaremongering to preserve his own and his own client's tax reduction options!