[windowwashers]

Hi all, just wondering what are the pros and cons of being a limited company.

[Ian Rochester]

Main benefit is that you can reduce your personal tax bill, which is good if you are earning above the 40% threshhold. 

You become an employee of the business, draw a wage £500/month pay tax on that at basic rate and then as a shareholder you get a dividend which is taxed at 22%, so you should never need to pay 40% tax.

Negatives is on the accounting side, you need to submit a set of accounts to Companies House every year, which is quite expensive in comparison to standard accounts and also people can see how the business is performing.

[DASERVICES]

You seem to be doing well out of it Ian R. Was going to give you a bell about your holiday let but you are fully booked.

[supernova77]

then as a shareholder you get a dividend which is taxed at 22%

Wrong!

You only pay 10% tax on dividend income that falls below the £34,600 basic rate tax limit... but 32.5% on any dividend income above that limit.

Andy

[davids3511]

Hi

It's not quite as simple as either 10% or 32.5%. There is a divident tax credit of 10% so if you earn under £34600 (07/08 tax year) you will pay no tax on your divident. If you earn over £34600 you will pay 32.5%-10%=22.5% on anything over the £34600.

Also, you need to remember your company needs to make a profit before you can draw a divident and any profit the company makes will be taxed at about 20%.

Basically, if you earn £34600 or less, you will pay about 20% (corporation tax on company profits). If you make a profit of 50k and you want to take it all out you will pay (about) 20% corporation tax on the lot and 22.5% on £15400.

The saving is basically on national insurance.

David

[NWH]

What site do you have to go on to to see how companys are doing then LOL.

[jeff1]

What site do you have to go on to to see how companys are doing then LOL.

This is companies house website.
http://www.companieshouse.gov.uk/

[dave0123]

There is a divident tax credit of 10% so if you earn under £34600 (07/08 tax year) you will pay no tax on your divident. If you earn over £34600 you will pay 32.5%-10%=22.5% on anything over the £34600.

i carnt really see that being right 

[Nameless Drudge]

whatever wage you decide to pay yourself is subject to pay as you earn tax and national insurance and employers national insurance which your limited company will have to pay.the only advantage of note is the limited liability so if you go bankrupt you can still keep your house or other assets. a few years ago when i was taxi driving a few of the others went limited as the big selling point was the first 10,000 of profit was tax free,any tax savings though are outweighed by the p.a.y.e. payments and the fact your accountant wont charge you £200 any more when you turn up with the supermarket bag full of bits of paper,it will be £2000 and you will have plenty of hours spent getting things right.the wage you decide to pay yourself has to reflect what you actually spend and need so you wont get away with paying yourself on paper £500 a month when it ought to be £1200,the tax man wants his p.a.y.e for a proper and true amount.

now if you want to expand,expand,expand and you have a marvellous credit rating,go limited, then do it all with the banks money,pay yourself a huge wage,milk it big time then when it all goes tits up walk away and write off all your debt keeping enough cash to start again.some people would view that as fraud but the clever ones see it as a legitimate business plan.

[dave0123]

well..

i wouldnt say that. firstly youd pay your self 100 or bit less a week as salery and rest in divends surely. yes i understand your accountant price will go up but to be fair i think its money well spent and of course a business expense.

and you dont need employees insurance for limited company with just you working.


Dave

[Nameless Drudge]

 


a tiny weekly wage and the rest in dividends(which can only be paid out of profits) is worth a try but make sure you have got your figures right if the tax inspector wants to quiz you, the employers insurance i refer to is employers national insurance contributions,paid as a percentage of the wage figure you use , you are an employee of the company.so each week if you pay yourself a wage of £200,you then deduct the weekly tax figure say £12 then the employees national insurance,say £12,total £24. 200 minus the 24 tax and national insurance is 176 take home and thats what you get,the 24 quid is then sent to the tax collectors office. now on top of this is employers national insurance which is about 9 per cent i think, so 9% of 200 is 18 so you have to send off the 18 quid with the 24,making 42,sent monthly.the actual figures are not exact but can you see the picture just to put 176 quid in your pocket weekly,if you dont do the paperwork you will have to pay someone to keep it right.

[dave0123]

am not limited. but i know all of that.


Dave

[davids3511]

Hi Dave123

It is right. Don't forget you will already have paid 20% corporation tax.

David

[davids3511]

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnSavingsAndInvestments/DG_4016453

[dave0123]

Thanks David..


sorry mate!! Just suprised i mean these days they usally tax you anywere they can.


Dave

[davids3511]

Hi

I know, any way they can they tax tax tax. It used to be even better until about two years ago. You got your first 10k free of any tax, divident tax AND corporation tax. If you used your tax free allowance you could get 15k without paying a penny in tax. Gordo changed all that though!

David

[windowwashers]

i am now even more confused than i was at the start of this post 

[davids3511]

Speak to a good accountant. They are the best to discuss your needs and advise you properly. Many offer a free 1st consultation in the hope of gaining your business.

[dave0123]

Thanks david.


Year i heard that as well.. as my brother was a limited company in another trade.


I may well look into becoming Limited in the near future even with the 20% tax its still worth it


Dave

[Trevor Knight]

Look at this link, it will answer all your questions regarding the pro's and con's of being a Ltd Co.

http://www.companieshouse.gov.uk/about/guidance.shtml