plus if labour get in corporation tax going up to 26%
If it does go up to 26 percent, it simply means it's going to be harder to keep money in the company and keep it capitalised. Just reinvest the money in the company for growth that the whole idea with corporation tax the higher it is the more it encourages business owners to spend money on the business to expand it.
What's the good of that? You are in business for profit not to keep Gardiners afloat!
Well the idea works like this..it all depends on spending the money smartly
Company end of year profits say are £10k after wages, and business expenses. So that's a £2600 corporation tax bill.
Instead of spending it on 'stuff' for the company, invest it into.
An advertising budget
An extra vehicle
Your website
An extra member of staff
That's how corperation tax works and why it exists.
Spend 5k on advertising.
2.5k on an extra van & equipment
2.5k on staffing costs
0 tax to pay as all the profits were reinvested in the business.
But the whole point of going limited is to pay yourself dividends instead of a salary and if you make no profit, you can't.
You can, but you are thinking about it the wrong way. The whole point of going LTD is to separate the business from your personal affairs.
Here's how it works. Ill give you my example.
My salary is £11500 a year and my wife is also £11500
So we extract £23000 out of the business with no income tax to pay (just a tiny amount of NI but that's all) we are on PAYE and get a payslip every month from the accountant.
Our living costs have been simplified, so we can concentrate on growing the business. So 23k a year is enough for us to live on for now.
Now you cant actually extract dividends from the company until you have made a profit in the 1st place. This is why a salary to cover your basic living costs is best practice as this comes off the companies profits immediately, dividends do not.
I only work 4 days a week, and even that my third day in the week is a shorter day due to it being for quarterly window cleans. We are on track for £52k turnover this year, so the company profits just minus the wages are going to be around the £29k mark, then take off fuel and all the other gubbins and we are in around at £20k profit so far.
Now i wont be able to take dividends until the company is fully capitalised at £16,200 (the 20k profit minus the corperation tax of £3800)
You can then withdraw your dividend (up to £5000 tax free, or more) from that £16,200 balance. Leaving a capital balance in the companies account for the next financial year of £11,200. You can choose to use that money to invest in the business for the next year, or spend it all on the business in the same year, but make sure you get your maths correct.
Now what do you do if an unexpected bill comes your way (it has with us) the you can take a directors loan from the company and pay it off with your dividend at the end of the year, as long as you dont exeed the £5k allowance there wont be tax to pay, and as long as you dont go over the £10k directors loan limit in any one year period you should be ok. But your accountant will recommend whats best.
This is not ADVICE this is simply an example of our current state of affairs as recommended from my accountant.
PLEASE USE AN ACCOUNTANT FOR ANY ADVICE
