[Carl2009]

I've been trading for a year and have just had a conversation with my accountant about the benefits of becoming a limited company.

It seems that if you are making more than £20k profit then it's probably better to be a ltd. company. Has anyone made the switch? How have you found it? Was it worth it (specifically, how much more are accountants fees and how much more admin is there?). I have no employees (won't be getting any) and am below the VAT threshold (won't be going there either).

He's pointed out some pros and cons but reckons that I could save as much as £2000 in tax if taking out a small wage and then taking dividends (plus there are the benefits of the Director's Loan Account).

Any thoughts?

[daz1977]

regarding vat as soon as ur turn over goes to about 70 g  then u have to go vat registered

the main benefit to ltd is if it goes tits up u wont lose your house, only what the business owns

[daz1977]

check with dividends as i am sure the tax man change the law regarding them, as so many where taking them instead of wages,  i am sure he tried upping the tax on them

[daz1977]

have a look at this

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnSavingsAndInvestments/DG_4016453

a lot all depends on what u will be paying ur self

[outdoor restore]

have a look at this

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnSavingsAndInvestments/DG_4016453

a lot all depends on what u will be paying ur self

But don't forget that the Ltd Co will be paying corporation tax!!

[daz1977]

my misses uncle went ltd, said it was the worst thing he ever done, to much hassle and paper work

[prestige cleaners]

ive been limited since i started, paid just £1300 tax 1st year on about £26.5k turnover (partime), but there was a lot of expenses, van, fuel, phone, internet, clothing, charity, advertising, equipment/parts, biz loan etc

i think the 1st £6k is tax free, then a lot of the profit can be taken as dividends, (tax free) then take off expenses, then tax the rest.

just handed my accountant 2nd years info, so fingers x, it wont be too much, as my expenses are a bit lower this year.

you also have to pay personal tax but so far my bill has been £0 and just £100 accountant bill.

another good tip i was told is to get the wife as a director too instead of a secretary to get more tax breaks!

btw i declare all earnings cos of my religious beliefs.

[J-W-C]

This subject is a little to 10 of one ten of another in regards to if it is worth going limited or not, need to speak to an accountant.

Can I ask the man that says is declares everything like us all, why his accountant said it would be good to go limited on such a low income ?

Getting 26 thousand pounds of business in first year is top notch but is low from what I have been told for the reasons to go LTD in the first place.

I am confused, anyone shed any info on this please?

[daz1977]

divideds arnt tax free any more

like i said the main advantage of going ltd is if you go bust the compnay is ltd on what they own, so u can not be chased for the companys debt,  unless u sign a directors guarantee loan,

u can claim everthing being a sole trader that u can been ltd

u can also claim any thing u want, providing they dont check u and if they check u and something isnt right   u get the blame not ur accountant, 

a lot of accountants want people to go ltd as peopel think they have to get an accountant to do there tax return and so they make money on what is very easy to do  providing you have clear accounts

[daz1977]

got this from a business forum

Advantages of a limited company

1) The liabilities of the company are limited to the assets held within the company so if it goes buust there is usually no comeback on the shareholders personal property (but see later)

2) There is still the (incorrect) belief that a company is more substantial than a sole trader/partnership and there are still companies that do not deal with sole traders (although becoming fewer).....plus not being registered for vat is a bit of a giveaway in most circumstances 

3) They are currently more tax efficient if the profits are over £25k and under £300k by using a mixture of salaries and dividends, and profits can be retained in the company instead of passed to shareholders so personal tax can be manipulated.

4) It is easier to take on new investors in the company (by issuing shares)

5)It is also easier to sell a share in the company than a part of a partnership.

6) A company can create a floating charge over its assets in order to borrow more money (Usually limited to larger companies not startups)

7) As the company is a seperate legal entity the vat registration is with a single business.

Disadvantages

1) There are more admin and costs to running a limited company -

An annual return has to be filed at companies house

Accounts have to be produced in a set format and again filed which means that the general public have access to them (for a small fee).

Money belongs to the company not the individuals therefore to take money out of a company you have to pay a salary or dividends. If dividends then all neccessary procedures and paperwork need to be completed (Minutes of meeting, dividend vouchers etc)

Due to above accountants costs are higher.

2) Although liability is limited lenders will often insist that shareholders/directors give personal guarantees which will often negate much of the limited liability (The lender can still get the money from you personally)

3) It is more difficult to close a limited company than sole trader.

[daz1977]

this is for a builder, but the principal applies

Well builders like many others risk personal insolvency in a "credit crunch" when the market suddenly drops.

By being a limited company you need not risk your home or personal property unlike a partner or a sole trader say.

At most you would lose the fully paid up share value of your investment-quite often only a pound or two so does have some specific advantages here.

Likewise a company has a separate legal personality so can sue and be sued in its own name-so you needn't again be personally involved/at risk say in a negligence action or court case ordinarily.

The down side for this "peace of mind" is more law/red tape and some admin fees to set up and maintain a company though these are usually low and in fact a good company secretary can do this for you at low cost. Likewise for a company though the accountancy costs may be more there can be tax savings where you pay yourself in dividends as opposed to salary. There is of course corporation tax payable but only if a profit is made and there is nothing to stop you paying yourself as a director of the company an appropriate salary to minimise this.

This area can be a complex one due to the issues of tax/company law and so forth but in practice for small private limited companies the "pain of compliance" has been eased by the government and this makes the issue of incorporation quite an attractive one for many if not all businesses.

For more see our website at http://www.business-lawyers.org


hope this helps and just isnt confusing you more lol

[Craig Trevain]

the company pays 20% corporation tax on all profit the company makes this includes your dividends, while you can draw upto 35,000 tax free(baring in mind the company has paid 20% already) in dividends there after you pay 40% tax on money you draw, however it pays to take about 150.00 a week on paye so you are paying some national insurance, i would not go ltd unless your company is making a profit of 35,000 per year.