limited company formation
Discussion
I always thought limited companies were for the self employed - whether Joe Bloggs builders or overpaid IT contractors 
However bloke down the pub said that everyone's at it now; ie even FTE salaried types like myself - how so?
I don't understand how someone in full time employment could benefit, given the annual accountancy costs involved?
Would love to be enlightened though
However bloke down the pub said that everyone's at it now; ie even FTE salaried types like myself - how so?
I don't understand how someone in full time employment could benefit, given the annual accountancy costs involved?
Would love to be enlightened though
Limited companies are NOT for the "self employed". A limited company is a legal entity for those who want to operate a business but protect their own exposure to financial loss. In other words, their liability is limited to the amount they have sunk into the company in the form of shares and/or loans.
If you are in a position to run a business as a self-employed individual, then you can, if you want to, opt to run that business instead through a limited company, for the reasons mentioned above.
There are some tax benefits which can be obtained once the company is up and running, which makes a limited company attractive to some people - as well as the benefits of limited liability.
If you are a normal "employee" merely trying to have your salary paid to your company instead of you personally will not work due to the HMRC rules on "intermediaries" i.e,. the dreaded IR35.
You can circumvent IR35 PROVIDED you can prove that the way your company operates is as a bona fide business and that you are not just using it as a tax avoidance vehicle to escape PAYE and Class 1 National Insurance..
If you are in a position to run a business as a self-employed individual, then you can, if you want to, opt to run that business instead through a limited company, for the reasons mentioned above.
There are some tax benefits which can be obtained once the company is up and running, which makes a limited company attractive to some people - as well as the benefits of limited liability.
If you are a normal "employee" merely trying to have your salary paid to your company instead of you personally will not work due to the HMRC rules on "intermediaries" i.e,. the dreaded IR35.
You can circumvent IR35 PROVIDED you can prove that the way your company operates is as a bona fide business and that you are not just using it as a tax avoidance vehicle to escape PAYE and Class 1 National Insurance..
Edited by Eric Mc on Tuesday 29th December 18:23
I freelanced through a Ltd company, my accountant thought it was the best way to run my business as I had mutlible clients and upto a point I was only paying 22% business tax and drawing dividends. But if you're doing £60k plus a year, you'll then pay personal tax ontop of that which then becomes silly. The other downside is that there aren't actually many costs you can put through a limited company.
As mentioned above, you have to have more than one client / employer. 2-3 or more otherwise you're still classed as an employee.
As a freelancer or contractor, if you're billing alot of money you're better off through a sole trader set up, you're going to get stuck for 40% tax whatever you do, but you can claim back more of your costs. The tax-men are pretty hot on this, they know most of the tricks, but as long as you can demonstrate you have several clients then you'll be fine. In my case I have invoices from about 5 different people, but two are my main sources of work.
I do a few different kinds of work, so I have both an Ltd and Sole trading account and my accountant puts through some stuff through the company and some stuff through the sole trading business and obviously off set as much costs as possible. So I get best of low business tax and being able to put some rent, bills, and various other costs associated with working from home through the sole trading account.
Best thing to do is to get a good accountant to look at what you're doing and work out what is the best way to do structure it, if at all.
As mentioned above, you have to have more than one client / employer. 2-3 or more otherwise you're still classed as an employee.
As a freelancer or contractor, if you're billing alot of money you're better off through a sole trader set up, you're going to get stuck for 40% tax whatever you do, but you can claim back more of your costs. The tax-men are pretty hot on this, they know most of the tricks, but as long as you can demonstrate you have several clients then you'll be fine. In my case I have invoices from about 5 different people, but two are my main sources of work.
I do a few different kinds of work, so I have both an Ltd and Sole trading account and my accountant puts through some stuff through the company and some stuff through the sole trading business and obviously off set as much costs as possible. So I get best of low business tax and being able to put some rent, bills, and various other costs associated with working from home through the sole trading account.
Best thing to do is to get a good accountant to look at what you're doing and work out what is the best way to do structure it, if at all.
Edited by rapidophile on Monday 4th January 14:57
rapidophile said:
I freelanced through a Ltd company, my accountant thought it was the best way to run my business as I had mutlible clients and upto a point I was only paying 22% business tax and drawing dividends. But if you're doing £60k plus a year, you'll then pay personal tax ontop of that which then becomes silly. The other downside is that there aren't actually many costs you can put through a limited company.
As mentioned above, you have to have more than one client / employer. 2-3 or more otherwise you're still classed as an employee.
As a freelancer or contractor, if you're billing alot of money you're better off through a sole trader set up, you're going to get stuck for 40% tax whatever you do, but you can claim back more of your costs. The tax-men are pretty hot on this, they know most of the tricks, but as long as you can demonstrate you have several clients then you'll be fine. In my case I have invoices from about 5 different people, but two are my main sources of work.
I do a few different kinds of work, so I have both an Ltd and Sole trading account and my accountant puts through some stuff through the company and some stuff through the sole trading business and obviously off set as much costs as possible. So I get best of low business tax and being able to put some rent, bills, and various other costs associated with working from home through the sole trading account.
Best thing to do is to get a good accountant to look at what you're doing and work out what is the best way to do structure it, if at all.
How come you paid 22% "Business Tax" on the company profits? The Corporation Tax rate is curently 21% and previously it was 20% and 19%.As mentioned above, you have to have more than one client / employer. 2-3 or more otherwise you're still classed as an employee.
As a freelancer or contractor, if you're billing alot of money you're better off through a sole trader set up, you're going to get stuck for 40% tax whatever you do, but you can claim back more of your costs. The tax-men are pretty hot on this, they know most of the tricks, but as long as you can demonstrate you have several clients then you'll be fine. In my case I have invoices from about 5 different people, but two are my main sources of work.
I do a few different kinds of work, so I have both an Ltd and Sole trading account and my accountant puts through some stuff through the company and some stuff through the sole trading business and obviously off set as much costs as possible. So I get best of low business tax and being able to put some rent, bills, and various other costs associated with working from home through the sole trading account.
Best thing to do is to get a good accountant to look at what you're doing and work out what is the best way to do structure it, if at all.
Edited by rapidophile on Monday 4th January 14:57
If you had kept your personal income levels (i.e. the amount extracted from the company for "living") below the Higher Rate tax brackets, you would have paid NO income tax or NI at all.
In fact, even if you had drawn £60,000 out of your company, you still would have paid, overall, less tax and NI than that paid by an employee or even someone who was self employed.
Edited by Eric Mc on Wednesday 6th January 11:48
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