Setting up Limited company/effect on income tax

stugib

Hi,

I'm considering taking a new job, and as part of the negotiations the job agency I found the job through is offering me a financial sweetener if I accept the job (so they meet their end of year targets I expect).

To claim this money I will need to invoice them from a Limited company, like an IT contractor does. This is completely new to me, so has anyone any experience of setting up a limited company and know what the tax consequences will be once I withdraw the money?

- Is it really as easy to set up a company as websites make it sound? Just a £25 payment and set up a business bank account you have a company in 3 hours!?
- Where does tax become payable, if at all? (this would be a lot less than being VAT registered and is only a one-off payment). Would any business taxes be payable? Would I have to declare the amount an income once it hit my personal bank account and pay tax on it? I remember there being a big thing around IR35 a few years ago but never affected me.
- Is there any significant admin to be done? Self-assessed income tax? When I closed the company? Any business tax declarations in April?

And is there any other traps I should be aware of once I've officially been the 'owner' of a company for a short time?

Thanks

olly300

If you are going down that path it's best to get an accountant involved.

There is quite a bit of admin if you want to do it all yourself and you have to understand enought tax law to work out how to manage the company's income efficiently, when you can pay yourself, give yourself dividends, and what businesses expenses you can claim. Also at the moment you still need to have a company secretary.

There are links around the web which will give you more detailed information i.e. http://www.pcg.org.uk/

Also more importantly you need to work out whether you will be caught by IR35. If you are then you really need to think whether the hassle of working this way will be worth it for such a short time.

Debt_Free_Chick

Are you already self employed? Or this just a regular job.

It's almost certainly not worth the hassle of setting up a company just to get a "bonus" ... unless it's thousands of pounds.

How much is the sweetener?

stugib

Thanks for the replies, and the PM'd info olly.

To clarify, I'd be taking a regular PAYE job with an insurance company. The agency, working on behalf of the company and getting their commission from them, is offering £2000 from their commission to me. So, it would be completely separate arrangement, and without the knowledge of my new employer. But the agency can't pay it to me directly, only pay an invoice as a business-to-business transaction.

I just need to work out the quickest, cheapest option to get to the £2k without the tax man seeing it

Cook_County

I'd set an LLP and get the agency an invoice from that LLP.

The LLP will still need to file a UK tax return as will the partners in the LLP and the income will of course be taxable.

stugib

Cook_County wrote: »

I'd set an LLP and get the agency an invoice from that LLP.

Interesting, had never even heard of an LLP!

So, just to see if I understand this ok, would this be legal? :

I set up an LLP with my wife as partner, invoice the agency, then pay that money from the LLP to my wife (who only works p/t so earns about 25% of what I do), so we only pay income tax at her lower rate? We could then dissolve the company any time after that.

So the work involved would be:
1. We fill out a form to make an LLP and pay £20 to Companies House. Get a bank account in LLPs name(?)
2. Invoice the agency and get them to pay the LLP. Withdraw the money into my wife's personal bank account (joint, but still her personally not the LLP).
3. We fill out a form to dissolve the LLP.
4. My wife fills out a tax self-assessment form personally in April, declaring an income of £2000 from the LLP.
5. We fill out a form to declare income (£2000), costs (£0) and profits (£0) for the LLP in April. No tax to pay by LLP.

Any clues as to how to work out the tax that would be liable on the £2000 at my wife's tax rate so we could put that aside? Is there a way to pay the tax immediately rather than having to sort it out in 6 months?

Thanks for your help.

Mouseman

Knowledge here is limited, so please please please consult someone who knows these things, BUT - If you're planning on a business account, that'll cost money from what I've seen (Been looking at a new business venture and pricing things up). Business accounts cost money? A personal account in a business name will most likely bring about the banks using a well known two word phrase... That's the only thing in your plan that jumps out at me as a possible hidden cost. Otherwise, looks reasonable to me Best of luck with it!

PasturesNew

It seems a long, complex and possibly expensive route you are taking to achieve something quite simple.

There is NO benefit to setting up a ltd company for the sake of £2000. It can be a nightmare. Lots of forms. Proper accountant... etc.

Why not: find somebody you know that HAS a Ltd company. Get them to invoice, then your wife can invoice them for, say, £1800 for some business service she performed for them.

The £1800 then goes down on her tax return