limited company question
bellagio_2
Posts: 190 Forumite
Is it possible to start a limited company but not draw any income from it and keep all profits in the business? I am full time employed and do not need the extra income just yet and would like to keep tax as simple as possible, what tax would the business be subject to and in the future (possibly 5-10 years) when i need to access the business profits how would this be done?
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Comments
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Yes, you don't need to draw out money from the company (assuming IR35 doesn't apply) but the company still pays corporation tax on the profits.
In the future, when you draw out money, you, personally will be liable to income tax at whatever rate is due at the time, depending on whether you draw money as wages or dividends, and depending on your total personal taxable income for that year. Could be zero tax if you've no other income and just taking up to £14k or so, or could be 40% plus if you're a higher rate taxpayer in that future year.0 -
If you close down or sell the company you might benefit from ER: gov.uk/entrepreneurs-relief
Which is a special tax rate of just 10%.
In addition, consider maxing pension contributions (£40k/year) direct from the company to minimise corp. tax.
If you don't use it already you may as well pay yourself a £2k divi each year as well. It's much easier than running payroll - IMV still keeps accounts simple and worth the effort.0 -
Yes, you don't need to draw out money from the company (assuming IR35 doesn't apply) but the company still pays corporation tax on the profits.
In the future, when you draw out money, you, personally will be liable to income tax at whatever rate is due at the time, depending on whether you draw money as wages or dividends, and depending on your total personal taxable income for that year. Could be zero tax if you've no other income and just taking up to £14k or so, or could be 40% plus if you're a higher rate taxpayer in that future year.
Unfortunately this comment is a bit muddled* - you absolutely do not want to pay corp. tax on company profits now, and then in five years pay that out to yourself as salary. That would unnecessarily tax at corporate and personal level - to avoid this, dealing with expected future trading losses definitely does not "keep tax as simple as possible" as the OP requests.
I realise the quote mentions dividends too, but really there should be no suggestion of paying a salary with money already taxed at company level.
*muddled; maybe not the right word - but inefficient and extremely unusual to suggest taking post-CT-profit through payroll.0 -
Unfortunately this comment is a bit muddled - you absolutely do not want to pay corp. tax on company profits now, and then in five years pay that out to yourself as salary. That would unnecessarily tax at corporate and personal level - to avoid this, dealing with expected future trading losses definitely does not "keep tax as simple as possible" as the OP requests.
I realise the quote mentions dividends too, but really there should be no suggestion of paying a salary with money already taxed at company level.
Muddled? I think the tax consequences of pennywise's post were self-evident.0
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