Starting a Limited Company, first timer

[tixy]

Hi all,

I'm new to taxation web and this is my first post!
Hope I can get some good (and free) advice:

i've been self-employed for a year, providing my own services, I earned around 80k gross.
I paid shedloads of tax on that through the normal tax bands

A colleague advised me to start up a Ltd company where I am the director, to employ members of my family and rent my own home as an office.
I really dont know how all the tax stuff works but here's how he said he does it:

he pays himself and family members the tax-free amount (around 6.5k)
the rest he pays CT on (around 21% right?)
then he pays himself and family dividends of which are charged at 10% but then refunded at 10%, so basically he doesnt pay tax again on that, and he pockets it

firstly is this true? more importantly is it legit?

secondly theres talk of off-shore companies to avoid tax - some brief advice as to whether that's appropriate for me please
and my ltd company giving out 'loans' that are never paid back, hence tax-free and deductible. Is this legal? how is it done?

I just need some nudges in the right direction, I can use the internet and do my own research, but only once someones given me a pointer - you cant really google these sorts of questions!

thanks all

[Incredulum]

If you're going to make this work, you need an accountant who will make sure that the paperwork is in place and the numbers are justifiable.

The theory is acceptable, making it work in practice is quite another matter. Your family members will actually have to work for you, and be paid a sensible market rate. So if your son is 14, then you may be stuck at paying him £4 per hour. That will take 31 hours a week to earn 6.5k. If they don't actually do this work, and HMRC come calling, then you will be in trouble.

If you rent out your home, then you will run the risk of paying CGT when you eventually sell the house.

I suggest you have a word with your mate's accountant, he's obviously well up there with the wheezes. If your mate doesn't have an accountant, don't, whatever you do, go ahead with this without an accountant yourself as you'll end up in a complete mess.

[Aftab]

Your are theroraticaly fine , but to be honest there are so many implcation of tax on incorporation.

1)CGT implication
2)Cessation rules will apply.
3)You must have enough profits after incorportaion so that can you can afford accountancy fees and releated expneses because u might need valuation of the business.
4)Losses, in case as a sole trader u can offset the losses against your current year all income but with company u can only offset the against current year other income of the company or carry forward against trading profits only.
5)Rent: as explain above.

My honest opinion will be do go for some professional accountant, although they will charge you but it will make your life more easy,
because i know one of my client who did the same thing and when he stucked he came to us and when i did his calculation from 2005,i concluded tht he had paid more tax which he could have save.

[RAL]

4)Losses, in case as a sole trader u can offset the losses against your current year all income but with company u can only offset the against current year other income of the company or carry forward against trading profits only.


My honest opinion will be do go for some professional accountant, although they will charge you but it will make your life more easy,
because i know one of my client who did the same thing and when he stucked he came to us and when i did his calculation from 2005,i concluded tht he had paid more tax which he could have save.

Are you sure about the losses rules for the company?

[Incredulum]

Are you sure about the losses rules for the company?

As you're not Aftab's schoolmaster, it's probably more helpful for OP if you post your own view.

[RAL]

As you're not Aftab's schoolmaster,

Of course not. I am no good at teaching or disciplining disciple, hence I do not have any

Please

1. Use English
2. Do not write nonsense.

Thank you so much for your cooperation.

[Generix]

i've been self-employed for a year, providing my own services, I earned around 80k gross.

I assume you are VAT registered

[section 44]

Also with regards to the rent, the recipient would be liable to tax on it.

firstly is this true?

You tell me (you know the guy, I don't).

As the above posts illustrate, what you have described, whilst technically possible, is really pushing the limits of what can be supported evidentially. Clearly there's probably some merit in some planning but don't let greed take over.

IR35 anybody?

[tixy]

thanks for the reply all

i'm not VAT registered as medics dont need to be
i tend to work for one to two different clients each day so IR35-wise i'm sure i'm safe

i wanted to pay myself 6440 and my wife 6440 and pay the rest to ourselves as dividends
only thing is the wife has a student loan on her head and i don't want to be in a position where she has to start paying it back
the rules go something like if she earns more than 15k she has to pay 9% back, which is a hefty amount
does anyone know how i can get around this?
if i pay myself more dividends i will breach the dividend income 37400 threshold and have to pay dividend tax after already paying corporation tax so thats not a way out. i also dont want money sitting in the company as i need it, so thats not a way out either

also about the dividend income threshold, does that mean if my total income (earnings plus dividends) reaches 37400 or is it just dividend income (as suggested by the name?)

thanks

[Jantra]

IR35 anybody?

I wouldn't have thought we knew enough of the OP's status ie a contractor or whether the fees earned are from a single source infering an employee/employer relationship.

home costs are allowable in the form of use of home as office. They have to be reasonable costs incurred and include

council tax
rent (not mortgage interest)
heating and lighting
cleaning

you total them for the house in total then apportion based on how many rooms in the house, applying one room as an office.

as for employing family, fine, but as others have said, it has to be justifiable and you may (or may not) have to register for PAYE depending on how much you pay them and how often.

in all of this just remember you are allowed to claim for costs incurred in running your business, but not costs that you would like to offset against your business income.

also, if you are going to pay divs then make sure that if you issue shares to your spouse that any divs they receive do not take them into the higher rate tax bracket as every £1 over this limit will see an extra effective tax charge of 32.5p

as everyone else has advised, pay to see an accountant, it will be money well spent.