on 75K - 100k consultancy how is best to set up a company Ltd

[Flute]

I would like to know that this year I will earn 75K to 100K I have read about paying divedends which is fine up to the 40% threshold but there after eveything will be charged at 40%. One accountant has suggested that I also have several people who are share holders that are self employed invoicing the Ltd company to remove funds from the company? Is this a good solution and what are the benifits of this?
Sugestions greatfully recieved.

[busterdog]

sorry but can't provide much sound advice apart from saying that whatever you do you can potentially get caught doing something "wrong" or become liable for tax/ni.
Having subcontractors invoicing the Ltd company involves possibly invokes IR35
you can take dividends up to 10k without tax but NI will be due. I know someone who is self employed rather than Ltd company who claims only to pay 3% NI and I have heard of loads of other get rounds/loop holes.
Beware that your local accountant may not be an expert in contracting .....
I have decided to put a resonable salary through PAYE and claim dividends and expenses and leaving the rest in the business, buying land or something if there is a profit over the corporation tax threshold. i.e. trying to be far whilst enjoying the benefits of being self employed. It all depends of what you require personally to keep on living as to what drawings (whatever form) you take from the buiness.

[busterdog]

PS

have you heard of professional contractors group?
They do act on contractors behalf... and produce more pertinent articles

[Nigel Lord]

Flute

There are a number of significant issues here. This type of income extraction exercise is highly complex and you should really seek professional advice.

The answer really depends on the profile of your company and personal circumstances.

Purely for illustrative purposes - assuming that the company's profits (before paying the shareholders/directors) is less than £300,000; and that you are a 40% tax payer, the optimum solution would probably involve taking a modest salary just above the NIC lower earnings limit (£4,615 pa) and the balance in dividends.

Your effective tax rate on dividends taxed at the higher rate would be 41.5% (19% corporation tax, 32.5% income tax). This compares with a top level marginal rate of 51.37% (-2.43% corporation tax saving, 40% income tax, 1% employee's NIC, 12.8% employer's NIC). This rate would be even higher (by 10%) on earnings between the upper NIC limit (£30,940) and the basic rate band (effectively £35,115).

You may need to pay certain levels of salary to protect pension entitlements.

You should also be wary of the IR35 regulations on service companies.

If you require any further assistance please do not hesitate to contact us, and we will be happy to act on your behalf.

Nigel Lord
Lord Associates
Taxation & Business Consultants
Caxton House
Old Station Road
Loughton
Essex, IG10 4PE
020 8418 9101 & 07769 931852
mail@lordassociates.co.uk