Taxation question

[peterdallan]

Hi,

I'm currently employed and on PAYE, paying tax at the top rate.

I want to start building a business for myself and was wondering where I stand tax wise should I have the business up and running and profitable while I am still a higher rate taxpayer on PAYE.

Will I still have to pay tax at the higher rate on any profits I make? In the interim, while still working and having the new business running concurrently, I won't need to pay myself from the new business and would put any profits back into the business.

Any help would be much appreciated.

Regards

Peter

 

[Newchodge]

If you operate as a sole trader you will have to pay tax at the higher rate on all profits, irrespective of whether you leave them in the business or draw them out. You and the business are a single entity.

The situation would be different if you set up a limited company. In that case you and the company are separate. The company would be taxed at 20% on profits and you would be entitled to draw a dividend on what is left. You would pay higher rate tax on the dividend, but if you left the money in the company until such time as you no longer pay higher rate tax, it would be more tax efficient.

If you are considering setting up as a limited company I would recommend talking to an accountant first.

 

[UK Contractor Accountant]

Higher rate tax on dividends = 25% of the net dividend taken.

 

[peterdallan]

Just wanted to tap this excellent resource before going the accountant route. Advice was perfect for what I needed at this stage so thank you very much for your help.

Peter

 

[MyAccountantOnline]

If you operate as a sole trader you will have to pay tax at the higher rate on all profits, irrespective of whether you leave them in the business or draw them out. You and the business are a single entity.

The situation would be different if you set up a limited company. In that case you and the company are separate. The company would be taxed at 20% on profits and you would be entitled to draw a dividend on what is left. You would pay higher rate tax on the dividend, but if you left the money in the company until such time as you no longer pay higher rate tax, it would be more tax efficient.

If you are considering setting up as a limited company I would recommend talking to an accountant first.

I agree entirely.

For someone in your position from what you've said a limited company is going to be your best option.

 

[Jeremiah@RHJ Accountants]

Just to agree with what everyone else has said Ltd would be best for for you.

Also you do not have to take the dividends so can let profit build up in the company.

There is just the corporation tax of 20% on business profits to pay..

I would add too that speak to accountant before registering the company as they can help with the company formation and also give tax planning advice from the start of your business.

 

[peterdallan]

Yes would always consult an accountant first, really appreciate all the advice.

Next stop e-commerce platform, but that's for another time and a different section. It is obvious that there are hundreds of different views and suggestions. Fortunately I have time to look at them all and decide what I think works best for me.

Peter


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