New Limited Comany - Contractor

kerryi27

Just trying to work out how much money need to hold back for tax and NI.
My partner has worked Apr-Oct and has already passed the threshold where he needs to pay tax for this year.

He has now got a years work through an agency making signs for a company and they advised him to go limited.

He is invoicing company approx. £800 per week so will probably make approx. 19000 this year profit between now and April which we will need all of it to live on.


Do we take it in dividends and if so how much tax and ni will we need to set aside or how do we calculate it.

Any advice is appreciated.

DoctorStrange

Was your partner employed by the same agency/client between Apr/Oct? If so, you should check out the IR35 rules in addition to tax.

Assuming he's getting in business on his own account, the most tax efficient method is two draw a small salary but how much depends on his earning to date - do you know that those are?

Pennywise

Why not get an accountant sooner rather than later to discuss your options. Getting it wrong can cost thousands with a limited. You'll almost certainly need an accountant to do the year end statutory accounts and corporation tax return, and maybe also to run the payroll/PAYE and VAT returns too.

As said above, a low salary and high dividends is usually the way to go, but it's always complicated in the first year, if part year is employed/sole trader and part year is limited. Sometimes the low salary/high dividend approach isn't optimum in year 1.

Also, what about your own position? If you were also a shareholder and/or director, you could be paid wages and/or dividends too to use up your personal allowance.

A good accountant can be worth their weight in gold in the early years of a limited.

Potbellypig

kerryi27 wrote: »

Just trying to work out how much money need to hold back for tax and NI.
My partner has worked Apr-Oct and has already passed the threshold where he needs to pay tax for this year.

He has now got a years work through an agency making signs for a company and they advised him to go limited.

He is invoicing company approx. £800 per week so will probably make approx. 19000 this year profit between now and April which we will need all of it to live on.


Do we take it in dividends and if so how much tax and ni will we need to set aside or how do we calculate it.

Any advice is appreciated.

All good advice above, and I'd also recommend an accountant. I personally take 25% out straight away for tax, NI contributions and accountants fee, and that is always ample.

TheCyclingProgrammer

I will echo the above advice about getting an accountant. Personally I wouldn't have gone down the Ltd company route on such a low turnover but if the agency would only hire him through a Ltd company then he may have had no choice.

I will give you a very basic answer based heavily on some assumptions:

* You understand what IR35 is and you have assessed that the current contract is *outside* IR35.
* Your partner is the sole director and shareholder of the company.
* Your partner has no other sources of income.

You will be able to pay a salary and deduct a number of business expenses to reduce your company's taxable profit. The usual advice is to pay a salary up the LEL so you gain a qualifying year for state pension purposes without incurring any employee or employer NIC. For this tax year the most efficient salary is around £715 a month, or £8580 a year. This will not incur any income tax or national insurance, or any employer NIC.

Other expenses you may be able to claim for include business travel, office costs, accountancy fees, equipment etc. For the purposes of this illustration I will assume expenses of £0.

* Turnover: £19,000
* Director's salary: £8,580
* Taxable company profits: £10,420
* Corporation tax due @ 19%: £1,980
* Retained profits: £8,440
* Dividend of £8,440 - first £2k taxed at 0%, remaining £6,440 taxed at 7.5% (£483)
* Total take home: £8,580 salary + £8,440 dividend - £483 income tax = £16,537 take-home.

00ec25

kerryi27 wrote: »

Do we take it in dividends and if so how much tax and ni will we need to set aside or how do we calculate it.

the illustration given below answers your question: very low income tax, no NI

HOWEVER it is also clear you have zero idea what you are doing, and it is totally unrealistic to expect you to be able to cope with this without an accountant. Therefore you will incur expenses....

TheCyclingProgrammer wrote: »

For this tax year the most efficient salary is around £715 a month, or £8580 a year. This will not incur any income tax or national insurance, or any employer NIC.

Other expenses you may be able to claim for include business travel, office costs, accountancy fees, equipment etc. For the purposes of this illustration I will assume expenses of £0.

* Turnover: £19,000
* Director's salary: £8,580
* Taxable company profits: £10,420
* Corporation tax due @ 19%: £1,980
* Retained profits: £8,440
* Dividend of £8,440 - first £2k taxed at 0%, remaining £6,440 taxed at 7.5% (£483)
* Total take home: £8,580 salary + £8,440 dividend - £483 income tax = £16,537 take-home.