Setting up Ltd company while working

[luke_robinson]

Hi Guys,

I am thinking of setting up a ltd company while working?

is there any issues to this? apart from my employer granting permission.

as this will be my first business, how do I got about paying tax and NI? as I currently pay this through my employer.

any help would be much appreciated

Cheers
Luke

 

[Scalloway]

If you set up a limited company the company will be responsible for tax and NI. If you plan to pay yourself a salary you will need to register the company for PAYE. It is more tax efficient to pay yourself from the company with dividends.

 

[luke_robinson]

okay thanks for your reply

the company may only make a small profit in the first year, as i currently pay tax and ni through current employer.

does that mean I can just pay myself dividends?

many thanks
Luke

 

[Scalloway]

You can pay yourself dividends if the company has made profits. You can pay yourself a salary up to £148 per week and not pay NI, but you will have to pay tax on code BR, ie 20%.

 

[luke_robinson]

okay that's interesting....so how would I got about paying tax? would that be through my normal employer on code BR or would it be separate?

cheers
Luke

 

[Alan]

Tax would be completely separate from your current employer.

If you paid yourself a salary from the limited company, as stated you would have to register the company for PAYE and make monthly realtime returns (see http://www.hmrc.gov.uk/payerti/) you can do this yourself but an accountant makes life a lot easier.

If your company will only make a small profit and you can live on your current employers salary, the best plan by far is NOT to pay yourself a salary from the company, and take dividends from the profit, or even retain the profit in the company to fund expansion.

This has been said above, but I thought I'd reiterate.

For the relatively small cost of an accountant versus the tax you can save / issues you can avoid, I would seriously recommend getting an accountant (a good one too, shop around not really on price but to see if they really understand you and your plans).

 

[luke_robinson]

ok this makes sense, I suppose now this brings me a couple more questions:

I can get by on my current salary for now so is it worth running this business as limited company or sole trader?

next question is most of my suppliers and customers will be vat registered, so is it worth me registering voluntary for VAT?

many thanks
Luke

 

[Scalloway]

If you are a sole trader any self employed income will be added to your salary income to give a total taxable income. Any losses can be set against your salary for tax. Being a sole trader is easier to set up and easier to end if things don't work out.

If most of your customers are VAT registered it makes sense to register yourself.

 

[RobertLamb61]

why would your employer have to give you permission?

 

[Scalloway]

Some employers don't want you directing your efforts for someone else's financial benefit. Also they have to bear in mind the European Working Time directive.

 

[Alan]

why would your employer have to give you permission?

They don't, unless it is in your contract of employment.

Every contract of employment I have ever had, that recall, has specifically said I can't be a director of another company without permission.

 

[mankam]

hi
I am also planning to do start up. I am employed and now going part time ( work 4 day in Week) to do web site making business. My contract doesn't mention that you cant be director, however I told them that I am doing developmental work for one day a week for which they agreed.
I am in dilemma that If i ask permission for registering a company they may refuse?
My 13 year old son is also helping me in website work, Can I register company in his name and I become guardian?
Any advise will be helpful

 

[luke_robinson]

if I setup the company as a ltd company, would I have to pay tax and ni if I pay myself dividends if the company makes any profit?

 

[Anna Chandley]

if I setup the company as a ltd company, would I have to pay tax and ni if I pay myself dividends if the company makes any profit?

If the company makes a profit then the company will pay corporation tax at 20% of the taxable profits.

If you take a salary from this company you would pay tax and NI under the PAYE system - although the normal case would be to pay salary at a level that does not give a liability for national insurance.

If you receive dividends from the company and are a higher rate tax payer you will need to complete a personal tax return and pay tax on the dividends through the self assessment system. There is no national insurance payable on dividends.

Anna

 

[luke_robinson]

If the company makes a profit then the company will pay corporation tax at 20% of the taxable profits.

If you take a salary from this company you would pay tax and NI under the PAYE system - although the normal case would be to pay salary at a level that does not give a liability for national insurance.

If you receive dividends from the company and are a higher rate tax payer you will need to complete a personal tax return and pay tax on the dividends through the self assessment system. There is no national insurance payable on dividends.

Anna

thanks for the info Anna, I am still currently in full time work and i am setting up an eccomerce site in my spare time with a hope to making this my full time job.

I want to setup the company as a Ltd with vat registration, as i need to be seen as a i am taking it seriously.

What advise do you have with how I pay myself? should I pay myself dividends? and how do I go about paying tax when I am already employed?

thanks for your help
Luke

 

[Anna Chandley]

thanks for the info Anna, I am still currently in full time work and i am setting up an eccomerce site in my spare time with a hope to making this my full time job.

I want to setup the company as a Ltd with vat registration, as i need to be seen as a i am taking it seriously.

What advise do you have with how I pay myself? should I pay myself dividends? and how do I go about paying tax when I am already employed?

thanks for your help
Luke

The company will pay any corporation tax 9 months after its year end.

As you already have other employment it wouldn't be worth setting up a payroll for your new company so you would pay the post tax profits to yourself as dividends.

For example, if the company makes £20k of profit there will be £4k of corporation tax to pay leaving £16k post tax profits from which you can pay a dividend.

If your total gross salary and grossed up dividends plus any other taxable income is within the basic rate tax band then there is no further tax to pay. For 2013/14, assuming a standard personal allowance, if your combined income is less than £41,451 you would be a basic rate tax payer.

When calculating the total taxable income you need to gross up the net dividend by multiplying the net amount received by 100/90. So if you received a net dividend of £16k the gross amount of the dividend is £17,778.

If your combined income is more than £41,451 then you will be a higher rate tax payer and must inform HMRC and complete a self assessment tax return. The tax payable on any dividends in the higher rate band will be 25% of the net dividend received.

If paying all the company profits as dividends would take you into the higher rate band and you do not need the cash you can declare a dividend of a lower amount to keep within the basic rate band. The profits remaining in the company can be declared as a dividend at a later date when it is more tax efficient.

Anna

 

[luke_robinson]

The company will pay any corporation tax 9 months after its year end.

As you already have other employment it wouldn't be worth setting up a payroll for your new company so you would pay the post tax profits to yourself as dividends.

For example, if the company makes £20k of profit there will be £4k of corporation tax to pay leaving £16k post tax profits from which you can pay a dividend.

If your total gross salary and grossed up dividends plus any other taxable income is within the basic rate tax band then there is no further tax to pay. For 2013/14, assuming a standard personal allowance, if your combined income is less than £41,451 you would be a basic rate tax payer.

When calculating the total taxable income you need to gross up the net dividend by multiplying the net amount received by 100/90. So if you received a net dividend of £16k the gross amount of the dividend is £17,778.

If your combined income is more than £41,451 then you will be a higher rate tax payer and must inform HMRC and complete a self assessment tax return. The tax payable on any dividends in the higher rate band will be 25% of the net dividend received.

If paying all the company profits as dividends would take you into the higher rate band and you do not need the cash you can declare a dividend of a lower amount to keep within the basic rate band. The profits remaining in the company can be declared as a dividend at a later date when it is more tax efficient.

Anna

wow anna thank you so much for your advise, this has been a real help.

I don't need to worry about NI do I? as I already pay it through paye in current employment.

I can earn about another 6/7k before I hit the next tax bracket so I think that is enough for now while the company is finding its feet and starting out.

Cheers
Luke

 

[Deleted member 158641]

Tax would be completely separate from your current employer.

If your company will only make a small profit and you can live on your current employers salary, the best plan by far is NOT to pay yourself a salary from the company, and take dividends from the profit, or even retain the profit in the company to fund expansion.

Hello, Sorry about bringing this thread back, being a year or so old, however I just had a quick query.

If I am already employed and a higher rate tax payer, circa £40k .... and wanted to set up a LTD alongside my employment, (to avoid paying 40% tax as a sole trader).... is it possible to take £0 salary, as I am already paying the higher rate, and only take a dividend, what would the max dividend be possible and what % tax will I pay on this, as the company would have already paid 20% corp tax. Would it be a 10% dividend tax rate up to say the limit of £30k?

Thanks in advance for your help.

 

[Scalloway]

If you are already paying 40% tax you will pay 25% additional tax on dividends.

https://www.gov.uk/tax-on-dividends/how-dividends-are-taxed

 

[Alan]

Probably better to get professional tax advice, if your are on HR you probably can afford to spend a little to save a lot.

First thoughts are that the LTD company might be able to pay all profits into a pension plan to save you tax.

 

[TODonnell]

...
My 13 year old son is also helping me in website work, Can I register company in his name and I become guardian?
Any advise will be helpful

I browse another famous US forum. There is a subforum in which posts along the lines of "my relative signed me up for X and now my credit score is shot and I hate them" appear regularly.

Admittedly, this is usually, but not always, done without junior's consent.

Not saying you'd do it but young people can feel pressured into going along with a senior relative's business/tax ideas, without realising the effect it could have on their future. My 2p.

 

[Deleted member 158641]

If you are already paying 40% tax you will pay 25% additional tax on dividends.

https://www.gov.uk/tax-on-dividends/how-dividends-are-taxed

Thank you, and as a sole trader I would pay 40% as I currently am, think it's best cost wise to test the waters first with a year as a sole trader then make the switch then, as the difference "only" being 15% probably will be reduced by the various additional costs of an LTD