Private Limited Company - Low Turnover - Tax/Salary Query

2»

Comments

  • antrobus
    antrobus Posts: 17,386 Forumite
    matt10101 wrote: »
    Are you sure? as on the "PAYE and payrool for employers" link on the page you linked it states:

    The above all holds true in my hypothetical scenario?

    (sorry i can't link directly as new to the forum)

    The link would be here;
    https://www.gov.uk/paye-for-employers

    As you quoted;

    You don’t need to register for PAYE if none of your employees are paid £116 or more a week, get expenses and benefits, have another job or get a pension

    It's "get expenses and benefits" that should be noted. I was assuming that Bob's hypothetical wife would be a director and getting reimbursement of that £200 worth of travel expenses.

    But Bob's hypothetical wife would be better advised to opt for self-employment.
  • matt10101
    matt10101 Posts: 6 Forumite
    00ec25 wrote: »
    so your wife wants to end up with a company that has zero profit because all available surplus cash has been drawn out as a pay cost leaving nil profit in the company and so no corp tax liability nor any reserves from which to take a dividend instead?

    Presumably you have factored that into your wife's overall assessment of her total taxable income from all sources for her self assessment? No point the company avoiding 19% tax if she ends up with 20% basic rate anyway on employment income.

    It's possible, given i note your careful selection of a t/o that is below the income tax threshold, and a salary level that is below the requirement to file under PAYE. personally however I think you run a risk that if HMRC ever inspected (though why would they for such low t/o) they would say the variability means it cannot be a salary and must be a director loan account "withdrawal", which can only be cleared by declaring a dividend....

    Bob does ideally, but only if this is Legal.

    Bob's wife has no other income.

    Ah, so this is where it might not work, can you not have a variable salary?

    I also since read up on dividends, and it appears there is a personal allowance upto £5K before you are taxed on these, and that they only require a receipt and record of board meeting minutes declaring the dividend?

    So all Bob need do with this option is meet with his wife, record the declaration of a year end dividend, and issue a receipt, then she can add a dividend to her self assessment?
  • 00ec25
    00ec25 Posts: 9,123
    Combo Breaker First Post
    Forumite
    matt10101 wrote: »
    Ah, so this is where it might not work, can you not have a variable salary?
    no, of course you can have variable "salary" - those on commission routinely do so. However, the point is that your plan is illogical because your wife is doing herself out of NI pension credits just so she avoids having to be PAYE because she needs to earn below the lower earnings limit so as to avoid running PAYE - that is illogical.
    matt10101 wrote: »
    So all Bob need do with this option is meet with his wife, record the declaration of a year end dividend, and issue a receipt, then she can add a dividend to her self assessment?
    Get your wife to go and take professional advice on her options - low paid or no pay, makes it even more important that she gets it right, not relies on what you may think you know. You haven't even considered mentioned the ongoing admin costs of this company she ran off and has already set up. If you don't even understand the basis of dividends then this thread is going nowhere as we are not going to teach you everything you need to know in a few lines on a forum. Do you know how to prepare accounts to statutory standards so they can be accepted by Companies House? "Using up" the profits on a variable salary may be the least of her problems if she needs to pay to have accounts done for her.

    Anyway, what legal connection do you have to the company? Why are you involved in meeting with your wife in order to declare a dividend?
  • badmemory
    badmemory Posts: 7,635
    First Anniversary Name Dropper First Post
    Forumite
    I have to say I have known a few mobile hairdressers & not known one that was a ltd co. I suppose some of the "high end" ones may well be but this seems to be going just a little over the top.

    Most people using a mobile hairdresser are just concerned with how good a hairdo they will get & how much they will have to pay for it, if she can take card payments it may be an advantage. The only exception could be if she is doing it in a city & going into peoples offices to do it or maybe working in TV.

    Keep it simple is usually the best way to go.
  • matt10101
    matt10101 Posts: 6 Forumite
    no, of course you can have variable "salary" - those on commission routinely do so. However, the point is that your plan is illogical because your wife is doing herself out of NI pension credits just so she avoids having to be PAYE because she needs to earn below the lower earnings limit so as to avoid running PAYE - that is illogical.

    All I'm doing at this point is exploring options for Bob, and reading around the subject. Up until your post just now I had assumed NI contributions were not a factor, as however the salary is categorised, it ends up below the threshold for paying those contributions. You have now alerted me that this might not entirely be the case, so I will be reading more around NI contributions.
    Get your wife to go and take professional advice on her options - low paid or no pay, makes it even more important that she gets it right, not relies on what you may think you know. You haven't even considered mentioned the ongoing admin costs of this company she ran off and has already set up. If you don't even understand the basis of dividends then this thread is going nowhere as we are not going to teach you everything you need to know in a few lines on a forum. Do you know how to prepare accounts to statutory standards so they can be accepted by Companies House? "Using up" the profits on a variable salary may be the least of her problems if she needs to pay to have accounts done for her.

    Anyway, what legal connection do you have to the company? Why are you involved in meeting with your wife in order to declare a dividend?

    Sorry neglected to mention Bob is also a director and minority share holder (hence him being at the meeting), and he will be doing the book keeping.

    I don't understand dividends entirely yet, I've only been at this a few hours, give me a few more and I'll get there!

    No approaches to this apart from paying for professional advice are ruled out yet (sorry I know some people will think it annoying I've said this, but I'd rather learn, and am capable).
  • NI contributions may not be a factor in some ways but have you considered what pension income she will have, or possibly not have, in retirement?

    How is she going to get the 35 years (possibly more unless she is very young) needed to get a full State Pension?

    When you read up on dividends you will discover there is no Personal Allowance for dividends. There is a 0% tax rate applicable to dividend income, often referred to as the "Dividend Allowance" however that was reduced to £2,000 from 6 April 2018.

    And any dividend income is still taxable income so could have other impacts, entitlement to Marriage Allowance, High Income Child Benefit Charge liability, reduction in Personal Allowance etc and would have to be declared to Tax Credits.

    These things may not apply in your situation but to many people they are relevant and alter the overall benefit of the so called Dividend Allowance.
  • silvercar
    silvercar Posts: 46,867
    Academoney Grad Name Dropper Photogenic First Anniversary
    Ambassador
    Using hmrc's basic paye tools is very easy to set up and use. Once set up it would take you less than 5 minutes a month to declare the paye earned each month.

    Then Bob's wife could earn upto £702 a month without having to pay any tax or NI. When business improves, Bob's wife would benefit by earning £503 a month and qualify for state pension.
    I'm a Forum Ambassador on The Coronavirus Boards as well as the housing, mortgages and student money saving boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Forum Ambassadors are not moderators and don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com (it's not part of my role to deal with this). Any views are mine and not the official line of MoneySavingExpert.com.
  • tinners93
    tinners93 Posts: 9 Forumite
    It doesn't make any sense to set up as a LTD.

    Who's going to create and submit the accounts to companies house? That needs to be a cost factored in.
    Paying someone a salary below £8,424 means they won't get a state pension stamp.
    Paying a dividend will mean that the profits will be subject to CT @ 19% before the dividend is issued.

    Simple way to do it is:

    Set up as self employed. Bob puts together a simple P+L and files the tax return.

    With profits of £1,500 she wont pay any tax or NIC on it and to get a state pension stamp just pay voluntary Class 2 NIC of £153.40.
  • Correction to the above post: you only need to pay a salary equal to or above the lower earnings limit (£5876) to get a qualifying year for the state pension.

    You don!!!8217;t need to pay the primary threshold amount although the tax optimum salary in most cases is around this level (I go with £700/month for simplicity) if you don!!!8217;t qualify for the employer!!!8217;s NIC allowance.
  • polymaff
    polymaff Posts: 3,903
    First Anniversary Name Dropper First Post
    Forumite
    matt10101 wrote: »
    In our hypothetical scenario, Bob's wife thinks clients will prefer to see that they are dealing with a company

    If Bob's wife's clients DO want to trade with a limited company it is usually because they fear that Bob's wife will otherwise be regarded as an employee.

    In the context so far disclosed - the mind boggles :)
This discussion has been closed.
Meet your Ambassadors

Categories

  • All Categories
  • 342.5K Banking & Borrowing
  • 249.9K Reduce Debt & Boost Income
  • 449.4K Spending & Discounts
  • 234.6K Work, Benefits & Business
  • 607.1K Mortgages, Homes & Bills
  • 172.8K Life & Family
  • 247.4K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.8K Discuss & Feedback
  • 15.1K Coronavirus Support Boards