Limited Company Setup Advice.

[Lenny]

Hi all.

I'm about to start proceedings for creating a limited company. I've not had any real experience nor have any real knowledge of this area and have a couple of questions.

1. When invoicing another company for work carried out, would you deduct say 20% of the total amount and place it in a separate account ready for end of year assessments etc??

2. How would you pay yourself a wage from the limited company??

3. Regarding the tax & NIC on the above wage, would it have to be deducted before payment as if you were a paye employee??

I fully intend to engage the services of an accountant to help but would like a bit of a heads up beforehand.

Thanks for your time.

 

[Deleted account]

Why do you want to go limited?

If you have a number of staff or if you are bottom lining greater than £60,000 fine.
If not I think you will find it non viable.

The set up costs and accounting costs accounting workload.
Much easier to be self employed.
Do accounts yourself.
Only 3 figures required:

Income
Outgoing a
Profit/loss

Dead easy. No accountant, no accountant fees.

 

[Deleted member 26818]

If the Limited Company is in construction, the Ltd Co will have to be registered as an employer for CIS.
For the first year at least, the 20% will be deducted from payments made to your Ltd Co.
You may be able to get other companies to only deduct the 20% from labour costs, not from material costs?

How your Ltd Co employees you is up to you.
Some pay themselves a minimum wage so they are not liable for tax or NI and pay the rest as dividends.
Others employ themselves as CIS sub contractors, pay themselves all the money less the 20% tax already deducted.
You could pay yourself all the money earner Ned as wages, but you would have to deduct tax, NI and employer’s NI out of the money your company gets paid.
At the end of the tax year, you will have to request and fill out a form to offset any tax deducted at source by your clients against tax your Ltd Co should have been deducting from you as an employee or sub contractor.
After a year of trading, your Ltd Co can apply to be paid gross.
Have to have a minimum turnover of £30k and have to have paid or offset all your tax and NI liabilities.

 

[Octopus]

Best speak to an accountant

Why are you considering this?

And as for dividends to save tax .... this was changed a couple of years ago so it’s not so worth while any more ....

 

[123]

20% deduction for CIS isn't applied to materials. Also to apply for Gross status it's not just a case of having 30k turnover, you have to deduct cost of materials and it's also for a rolling 12 month period (like VAT). Full HMRC guide here

 

[Lenny]

Thanks for the replies.

Increased turnover and wanting to remove personal liability due to larger contracts with national companies makes me want to go Ltd now.

 

[plugsandsparks]

Main advantage to Ltd is as you have noted. Your liability is limited to share investment or guarantees (usually a pound or few hundred etc)
which means if it all goes pear shaped you keep your house, car and wife... lol
Added benefit is you can have multiple shareholders and can therefore split the dividend towards what is most tax efficient.
As a director you can set your own wages.
Downsides are: A bit more paperwork, you can do your own accounts if you wish and use the gov software (which is what i do) or pay an accountant who may have some extra advice on how to minimise tax.
You ltd company can pay you a pension as well as you paying into a pension as an employee. Pensions are still tax efficient.
I went ltd from day 1 for the reasons mentioned is first paragraph.

 

[Bellendian]

And you've got to behave and pay tax man on time every time!
CIS isn't linked to ltd co status, a sole trader or llp paying subcontractors, or receiving payments as subbies within construction will still have to register with CIS, so that is not an added burden to being ltd.

 

[pirate]

If you are making more money than you need, then it is a good thing generally to go the Ltd Co route. After the threshhold you pay 20%, but if you take more money as payment to you as a dividend, you have to pay extra tax because that is effectively a salary to you personally.
There is a "band" where it is a bit of a gamble...below that band it's not worth it, above that band it depends on your personal circumstances, other income, other expenditure...if you make masses of money it probably makes sense. Everyone's situation is different, but I am absolutely certain that you need to get an accountant in to assess your position, whether your income is at the lower end, or at the upper end where you should already have advice anyway.
On the liability issue, it's good to have that barrier of a Ltd Co when it comes to potentially going bust financially...but, depending on your circumstances, your bank may well be looking for a personal guarantee for any losses, so that's not helping you. If your bank doesn't need a guarantee, then you are making so much that you should have an accountant on board already. As director of such a company, you will not be immune from prosecution for negligent work by you or your employees, and from HMRCs point of view the actions of directors who are behaving incorrectly will not preclude a personal action for recovery.
In short, limited company status can protect you, but unless you have plenty of income to distribute to pensions and other investments, and not to your own pocket, it's not the magic bullet many believe it to be. Distancing yourself from financial failure where such failure is patently not your fault is a boon. Protecting yourself from legitimate claims for negligence is a matter for equipping yourself with indemnity insurance...whether you work as an individual or a company. It is essential not to lose sight of what the real issues are, and the solutions to those issues...
I urge anyone looking at the company route to seek and pay for proper advice from an accountant...if he gets it wrong, his insurance may pick up the tab.
There is a lot of talk on here about professionalism...get a qualified electrician in...
take your own advice, and get a professional in...it will save you in every way, and may well open up options that you had never thought of, actually.
(Not happy with the "actually" at the end of that sentence but I'd hate to have ended it with a preposition! Fellow pedants may now applaud)

 

[Baddegg]

So you don’t just plunder n pillage then pirate?

 

[pirate]

No, but rape is not allowed anymore, so we indulge in a little Morris dancing instead!
Not to be confused with
Austin dancing
Riley dancing
Wolseley dancing...

which shows what an old pirate I am, sadly

 

[stuarth]

Unless your turn over is over 150k most good accountants would advise against becoming a Ltd Co, the extra legal requirements & responsibility's out way the benefits for most small business. Make sure your accountant is fully qualified to advise on this, not all accountants are actually accountants could end up costing you a lot otherwise.

 

[Nigel]

Some good advice here bit some clarifications needed.

CIS returns are done monthly, not yearly. Miss a return and it is a £100 fine.

When paying yourself as a company director the standard thing to do is just take money from your account as and when you need to. Once a month put through the payroll a standard month at minimum wage. Ignore this figure as it is unimportant. You will clearly be taking more from your account han the NMW but anything over will be classed as a ‘Directors Loan’. Your accountant will work out at the end of your FY how best to account for these payments via a bonus (PAYE) or dividends.

 

[pirate]

What I said...
but thresholds are personal, not an arbitrary figure like £150k...
however I agree that such a figure may well be a good suggested level

 

[stuarth]

The 150k is what my charted accountant recommend as a minimum to make it worth while, from personal experience of being a Ltd company I would not bother for less turn over than the 150k because to do it properly costs money in accountants fees to make sure your not breaking any company laws etc can out way the savings in tax.

 

[Nigel]

The 150k is what my charted accountant recommend as a minimum to make it worth while, from personal experience of being a Ltd company I would not bother for less turn over than the 150k because to do it properly costs money in accountants fees to make sure your not breaking any company laws etc can out way the savings in tax.

My first year turnover was £80k.

It will be quite rare for a business to go straight to £150k turnover in year one.

Your accountant is talking tosh.

 

[Octopus]

Turnover is irrelevant if you are trying to minimise your tax and NI .......... its net profit that matters

 

[plugsandsparks]

I went ltd and VAt reg from day one, first year T/O was £40K.
I have to do the following.
1. Set up Ltd company with companies house, bit of a faff but straight forward. About £40
2. Annual return to companies house for any changes to company set up (£13)
3. Annual accounts (short form, ) - takes me 4 hours on a Sunday , these go to HMRC and Companies House, all online
4. VAT every quarter, takes me 1 hour.
5. Monthly PAYE return to HMRC, takes 15 minutes
6. Annual PAYE return, takes 5 minutes

Thats it, you are required to keep decent records and yes i have folders and folders of paper but i would have kept these records anyway even if sole trader.

So it costs me £13/year plus 11 hours work a year.
Its not for everyone but i prefer to do it myself, at the end of the day, if your accountant gets it wrong, its your bag to sort out and if HMRC come calling, its you they come to and you will have to pay your accountant to handle it. My business is very simple, no fixed assets, no clever stuff, just invoices to clients, invoices from suppliers, PAYE and expenses...

 

[stuarth]

My first year turnover was £80k.

It will be quite rare for a business to go straight to £150k turnover in year one.

Your accountant is talking tosh.

I am not an accountant so go by what they say.

 

[pirate]

OK, so 40k might be the threshold for some, double or treble that for others...as I said, it depends on your personal circumstances. I know a self-employed chap who has 8 companies, and allocates earnings where necessary to even out the VAT...he is very wealthy, so it works well for him...
Just saying...
(repeating...)
When I retired last year, I still got my accountant to do the books, and she is still doing them because the cessation accounts for my sold business were more complicated than I expected...once all these things are finished I may do my own tax return, but I doubt it. SAhe pointed out retirement reliefs and other areas where I could make savings, and for the huge outlay of about £400 she clawed back over £10k I didn't know I was entitled to benefit from, so all in all...get a professional in...
Now, where have I heard that before?