First Time Company Owner

davethebb

Hi everyone, After being made redundant earlier in the year I have an opportunity to start my own company and undertake 3 months of work (£30 to £40k) which is likely to be extended. I had assumed that I will be below the £85k VAT threshold and therefore I wasn't going to register for VAT. My question is that if I don't register for VAT and near the end of the year I go over the £85k limit what do I do?

Also regarding costs, I understand that pension contributions are tax-deductible so as my partner will be a shareholder as well as me, is it as simple as paying a lump sum into her SIPP and does this need to be proportionate to the shareholding between us? (PS I have used up my £40k allowance for this tax year but intend to do this next year).

Jeremy535897

Is your customer VAT registered and able to recover the VAT? If so, and you have costs with VAT on, you might be better registering anyway. If not, you keep a record of your turnover as you go along, and register when your annual turnover reaches £85,000. See:
https://www.gov.uk/vat-registration/when-to-register

Whether your partner is a shareholder is not the key issue. A company can only claim a deduction for costs incurred wholly and exclusively for the purposes of its trade. If your partner was a third party doing the same work as she will, would she be paid that much?

tacpot12

Jeremy535897 is correct that you can only pay your partner for the work she does, and contributions to her pension are a form of remuneration. 

If she is working the same hours as you in the business, she can receive that same salary and pension contributions that you do. But if she is only spending a could of hours a month doing bookkeeping for you, you will be in trouble with HMRC if you pay her much more that the going rate for a bookkeeper for two hours. 

Jeremy535897

tacpot12 said:

Jeremy535897 is correct that you can only pay your partner for the work she does, and contributions to her pension are a form of remuneration. 

If she is working the same hours as you in the business, she can receive that same salary and pension contributions that you do. But if she is only spending a could of hours a month doing bookkeeping for you, you will be in trouble with HMRC if you pay her much more that the going rate for a bookkeeper for two hours. 

If the real earning potential is in the hands of the OP, it may be hard to justify £40,000 pension for the partner, even if she works the same or more hours. A CEO can apparently be worth hundreds of times the wage of a staff member.

davethebb

Thank you both that was very helpful. I will keep in mind the value my partner gives to the company and keep her remuneration (inc. pension payment) in line with this. 

Pennywise

Have you reviewed whether you'll be caught by IR35 - if you are, it really restricts your tax planning opportunities, particularly wages/pension for a co-director who's not fee earning.