Opening Limited Company

[Alfaz]

I am about to make a bit of a leap of faith into starting my own consultancy business, however I am unsure what the most tax-efficient way is to go about this, as I was planning to operate as a sole trader but now I think there could be a better way.

Initially I would be working for 3 companies, 2 of which I would be invoicing monthly for my time, the 3rd is my families business that I own shares in and would receive dividends from. If I was to operate as a sole trader, I would pay income tax and NI on the consultancy income and dividend tax on the dividends I receive. However, I have been thinking about it a lot and now wonder whether it would be more tax efficient to operate as a limited company.

If I set up a limited company and transfer my shares in the family business into there, I believe I could then take salary and dividends out in the most tax-efficient way, with profits from the consultancy obviously being subject to corporation tax. Consultancy income would be around £50k in the first year with dividends being around £40k.

Does anyone here have any comments/advice on this? I appreciate its an unusual scenario to have someone running their own business but also receiving dividends from shares at the same time.

I am aware that being a limited company comes with costs due to the higher complexity.

 

[GLAbusiness]

Not at all unusual to have a limited co and also other income. I have a LTD for my consultancy business. Since I have a substantial pension from my previous PAYE employment I find the flexibility of the LTD in terms of what and how I take money out a key driver.

I came to this conclusion after extensive discussions with my accountant. I strongly advise you to get an accountant on board before you make any decisions. Only that way will the advice take into account all your personal circumstances. It will almost certainly save more than the cost.

 

[Ozzy]

I'm not going to give any comment or advice on tax, I'm not qualified to do so, but I would say that if there is a possibility that you don't "need" all the income from your consultancy then having that operate through a Ltd Co could be a good idea to keep that spare income to one side.

Personally, I would not move the shares in your family business into a Ltd Co (been there, done it, regretted it). I would keep them owned personally and receive the dividends personally.

Others may have different opinions.

Also, if you haven't appointed an account yet have a look at our accountants in the members' directory as we have many accountants who also share advice and give input on the forums here.

 

[Lisa Thomas]

Best to speak to an accountant. There are lots on here. I'm sure one or two will be along shortly to offer their services.

 

[Joyous]

If I set up a limited company and transfer my shares in the family business into there

You need to think long and hard before you transfer those shares. First check your shareholders agreement as it may prohibit the transfer of shares, especially to a non family member, ie the new company. Also dependent on the value of the shares there may be tax consequences for you as a result of this disposal. In short, it's not as straightforward as it sounds.

There's no reason why you can't keep the shares in your own name and use the limited company for your other clients. You'll just pay income tax on the dividend income as normal. Your new company will pay corporation tax on its profits and you have the flexibility to either take or not take an income from the company as you choose. You then pay any extra tax only to the extent that you take salary and/or dividends from the new company.

 

[WaveJumper]

All been said above so will not repeat other than sit down with an accountant and go through this carefully they will then have a better picture of all your incomings and out goings and give you advice on the best way to structure this.

 

[MyAccountantOnline]

I am about to make a bit of a leap of faith into starting my own consultancy business, however I am unsure what the most tax-efficient way is to go about this, as I was planning to operate as a sole trader but now I think there could be a better way.

Initially I would be working for 3 companies, 2 of which I would be invoicing monthly for my time, the 3rd is my families business that I own shares in and would receive dividends from. If I was to operate as a sole trader, I would pay income tax and NI on the consultancy income and dividend tax on the dividends I receive. However, I have been thinking about it a lot and now wonder whether it would be more tax efficient to operate as a limited company.

If I set up a limited company and transfer my shares in the family business into there, I believe I could then take salary and dividends out in the most tax-efficient way, with profits from the consultancy obviously being subject to corporation tax. Consultancy income would be around £50k in the first year with dividends being around £40k.

Does anyone here have any comments/advice on this? I appreciate its an unusual scenario to have someone running their own business but also receiving dividends from shares at the same time.

I am aware that being a limited company comes with costs due to the higher complexity.

It really does depend on so many factors whether for tax purposes a company will be beneficial. It's such an important decision it really is worth getting proper specific advice from an accountant who has all of the relevant facts.