Claiming tax back before starting business

gingergirl21

Hi there

When I started up my own business last year as a sole trader I filled in a form50 and got all my tax back (my earnings were well below the threshold). I know I will have to add this to my first tax return etc.

My husband has now started his own business after being made redundant. He’s set up a limited company but doesn’t expect to earn anything for a couple of months or so and even then it will be pretty low. He was a high rate tax payer previously and if he claimed all his tax back now it would be about £3000 and really help him financially whilst he sets up the business.

Of course he’s aware he will most likely be paying some of this back at the end of his first year but will have recouped it by then.

Has anyone else done this and are there any pitfalls I’m not thinking about? Does it make a difference he’s set up a limited company even though he’s not going to be earning a salary for a few months?

Dazed_and_confused

Why doesn't your husband hand his P45 in to this new employer (the new limited company) and then that employer will calculate any refund* due each time they make a payment to him.

In which case there is no need to involve HMRC (other than the new employer registering as an employer and filing Real TIme Information about the payments).

*what they actually do is calculate the tax due for the year to the point of that payment taking into account the pay and tax information from his P45 and deduct any tax due. Or in your husband's case, assuming his income has dropped like you suggest, make a refund of any excess tax deducted.

gingergirl21

Thanks. Although is it not better to have it all upfront? Our accountant has said that what he’s pay himself through paye would be under the threshold and the the rest in dividends.

Essentially what I am after is for him to have as much as he can upfront. We have bills and a mortgage to pay. He will be in a position where we don’t have to worry once he’s started billing but as it’s early days he is lead rich but cash poor

Dazed_and_confused

If he isn't yet an employee of the limited company then he could complete a P50.

However he would need to complete this on the basis that he might (will) work again this tax year. Which means HMRC will calculate any refund to the point of him claiming. He needs to wait 4 weeks from the date of his previous employment ending (the date of leaving on his P45).

If another 4 weeks pass and he still isn't on the company payroll then he can file another P50.

The advantage with this is that he gets a new P45 each time so when he eventually goes onto the company payroll he can hand that in and it will make sure he pays the correct tax (or get the correct refund) at that point.

Dazed_and_confused

Our accountant has said that what he’s pay himself through paye would be under the threshold

The limited company still needs a PAYE scheme and has to report the payroll under the Real Time Information system. Unless your husband isn't bothered about getting as much State Pension as he could do?