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First year trading
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Jaco70
Posts: 241 Forumite

I employ a labour-only sub contractor, and a year ago his accountant suggested he form a limited company and register for VAT.
Neither of these things really affect me, I simply deduct 20% tax from his earnings, send this to HMRC, but now pay VAT on his weekly invoice, which I didn’t previously.
He is under the impression that because this is his first year trading, he will get a big rebate from HMRC. He has in my opinion misunderstood information provided to him by his accountant, but I can’t think what was meant by his agent during their conversation.
I fear he is in for a disappointment when they submit his return.
He is familiar with the usual allowances for clothing, office space etc, as he has been a LOSC for many years, but he is under the impression that the first year as a limited company comes with some kind of special bonus. Whilst I’ve gently warned him that I’m sceptical, he’s inclined to listen to a financial professional, understandably.
Neither of these things really affect me, I simply deduct 20% tax from his earnings, send this to HMRC, but now pay VAT on his weekly invoice, which I didn’t previously.
He is under the impression that because this is his first year trading, he will get a big rebate from HMRC. He has in my opinion misunderstood information provided to him by his accountant, but I can’t think what was meant by his agent during their conversation.
I fear he is in for a disappointment when they submit his return.
He is familiar with the usual allowances for clothing, office space etc, as he has been a LOSC for many years, but he is under the impression that the first year as a limited company comes with some kind of special bonus. Whilst I’ve gently warned him that I’m sceptical, he’s inclined to listen to a financial professional, understandably.
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Comments
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It sounds more likely that the refund is in respect of the 20% deductions of tax you are making. If the limited company has a modest corporation tax liability it may recover the CIS deductions in excess of that corporation tax liability.0
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Jeremy535897 said:It sounds more likely that the refund is in respect of the 20% deductions of tax you are making. If the limited company has a modest corporation tax liability it may recover the CIS deductions in excess of that corporation tax liability.I think what may work against him on that though, is the fact that he earns quite a lot, maybe 70k. On which he will only have had 14k deducted at source.0
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Yes, but if he leaves it in the company, there is only corporation tax at 19% (currently) on his profits, and there will be expenses to come off what you are paying. Alternatively the company could pay him a modest salary within his personal allowance (which reduces corporation tax), then dividends up to the start of the higher rate at a tax rate of 8.75%, and could pay into a pension scheme, again reducing corporation tax. Properly advised, he might find that there is quite a lot of tax to come back.0
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Jeremy535897 said:Yes, but if he leaves it in the company, there is only corporation tax at 19% (currently) on his profits, and there will be expenses to come off what you are paying. Alternatively the company could pay him a modest salary within his personal allowance (which reduces corporation tax), then dividends up to the start of the higher rate at a tax rate of 8.75%, and could pay into a pension scheme, again reducing corporation tax. Properly advised, he might find that there is quite a lot of tax to come back.That’s good, I hope that’s the case.
I’m fairly well aware of his personal circumstances though, and I know that he pretty much lives to his income, so there’s unlikely to be anything left in the company, bar a grand or two at the most.
I suppose that the fact he takes it all out as earnings means it will be considered income, minus any expenses he can legitimately claim? There will be quite a few of these though, as he owns and runs a van, buys tools etc.0 -
He won't take it all out as earnings, but will take dividends beyond a certain level of earnings, if well advised (although there was a lot of upset about furlough on this subject).1
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I spoke to him and following his meeting with his accountant, he's getting a rebate of over 13k. I don't claim to understand it, but obviously his accountant wasn't misleading him.0
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It may be that the refund is due to the company, but the reckoning comes a bit later. It's hard to judge without the facts.0
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Jeremy535897 said:It may be that the refund is due to the company, but the reckoning comes a bit later. It's hard to judge without the facts.
Obviously I don’t know the details of his return either. I just pay him money every week and deduct tax.I’m pleased he hasn’t been disappointed though, and maybe I’ll change accountants myself now 😂0 -
Has he put is wife as director/shareholder of the limited company to use her personal allowance and basic rate band?
Or maybe the refund is from SA payments on account which may have been too high - the refund may only be temporary as small ltd cos don't pay POAs so he may get a shock 9 months after year end when CT bill arrives?0 -
Pennywise said:Has he put is wife as director/shareholder of the limited company to use her personal allowance and basic rate band?
Or maybe the refund is from SA payments on account which may have been too high - the refund may only be temporary as small ltd cos don't pay POAs so he may get a shock 9 months after year end when CT bill arrives?
With regard to paying your spouse, I pay my wife a very small wage for helping with office matters (6k a year tops) and my accountant is always warning me not to be greedy on this issue. He says if I pay her 20k, to reduce my income (which ideally I’d like to do), HMRC may want evidence of what she contributes to the management of the business.0
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