[AshWhite]

When you setup a ltd company you are creating a legal entity, of which you become employees (usually as a director). This means you get paid a salary, via PAYE, but of course the company is still liable for its share of your NI contributions - but you get a certain allowance tax-free (as determined by your tax code). If the company gives you a company car, it can claim deprexiation or relief of lease payments (depending on how its funded), but your tax code will change to reflect the benefit in kind allowance. The only time you don't pay this is if its a pool car exclusively for work use (ie royal mail vans) and not travelling to & from home etc.
With the ltd company being a seperate entity, you can't be held liable for its losses anymore than if you were working for a national ltd company (as long as you act in accordance with the law!), so if the company goes belly up, you keep your house, unless you've given a directors guarantee (which will normally be required for the 1st 3yrs of trading).
The VAT aspect is another kettle of fish altogether

[Jamie Pearson]

The only disadvantage to becoming a limited company for us was when we went to change our vans.

Because we were still in our first year we had no accounts meaning I had to take out the finance personally.

A similar situation we have is we cant join the Contract Flooring Association for another year until we have 3 years of accounts as a Ltd Co.

Other than the above moving to a Ltd company has benefitted our business massively.

[happy mondays]

As Ian G has said you can only pay dividends if the ltd company is making a profit.

Some total c##p is spoken on here. If you make a profit in any business you pay tax on those profits. 

Its also true that your accountant wont be liable for any wrong doings, its down to you. With accontants, from my own experience the cheaper ones are best avoided, its like anything in life, you only get what you pay for. 

Cash is king as it always has been and always will be, but its very wise to have other legitimate income that you have paid your taxes on to pay the bills. If not its only a matter of time before it comes back and bites you on the a##e.

A friends, friend had a business not turning over enough to be vat registered, he had a £90k car, his wife had a £50k car they lived in a £600k house, nice holidays twice a year, private schools for the two kids, all paid for from a company making just £15k profit pa  in the end he lost everything including his wife.   

Mike, of course certain things can be paid for by your ltd company just as they can with sole trader or a partnership, but general everyday living expenses cant.  If you dont have a wife who has a good income to pay the bills, how can you live?

Ltd is safer especially if you employ staff, but remember all assets are the companys and not yours, so that shiney new van and truckmount will be sold for peanuts at auction if the business fails.

[Mike Halliday]

Happy, you must have missed this part of my last post

.....'I'm in a favourable position as my wife earns a good income so has the disposable income to run our household so  our company can run at a very low profit'.....

John my post about how I spend company money was in response to the post prior from Ricky who mentioned Alton Towers..... although not relevant to the original starting post like most topics this had gone off topic into profit & spending,

[happy mondays]

Mike, I totally understand how it works, my businesses have paid for many a nice thing tax free.

I understand how you choose to run your business, your wife is earning a wage paying tax and paying the bills.

My point is....

As far as I am aware If you make a profit in any business you pay tax on that profit, I would like an explanation off Dereck of how you can make a profit in a business and pay no tax 

[AshWhite]

Perhaps an explanation might be the difference between gross profit, and nett profit?

[happy mondays]

Gross profit is total profit and net profit is after deduction of tax and deppreciation, you make a profit and you pay tax 

[AshWhite]

Exactly my point..

[derek west]

thought a clever guy like you paul would of worked it out. heres a clue, i made a massive profit (well, wouldn't say massive by your standards ) i'll rephrase that, i made a humble profit "THIS YEAR". can you guess what it is yet?

[happy mondays]

 My standards 

Why would I want to guess  my point was if you make a profit you pay tax, end of.....

you stated you havent paid any tax and made a profit, I would like to know how this is done

[elliott cleaning]

Guess what Derek is trying to allure to is that if he had said "LAST YEAR" it would have meant his profit was less than the 'personal tax allowance' threshold. (Humble indeed).  As for "THIS YEAR" - well there ain't any take due yet

[happy mondays]

thought a clever guy like you paul would of worked it out. heres a clue, i made a massive profit (well, wouldn't say massive by your standards ) i'll rephrase that, i made a humble profit "THIS YEAR". can you guess what it is yet?

Ok Derek, I cant wait any longer.  I'll have a guess you made £20 and there is some clause saying if you made less than £25 profit you dont have to pay any tax  

[derek west]

 
just for you paul, seeing as the suspence is killing you.

if i made  aloss in my first year, small profit  in my second year, and made a humble profit in my third year, would that help you work out how i made a profit THIS YEAR but manged to avoid paying tax. its next year i'm worried about as my business is growing at a predictable rate and can see why my accountant is advising me to go ltd. but at the moment i'm not to up on what ltd is all about so need to get some good advice elsewhere befiore committing.

[happy mondays]

If your in your fourth year of business in the service industry and only just making a profit I would be worrying 

And no, if you made a small profit in your second year some tax should have been due.

Your not to up on what ltd is  you said your accountant had advised for you to go ltd, no b####y wonder if youve never paid any tax, so go ltd  : But the tax you may owe as a sole trader will always be your own debt and cant be passed on to the new ltd co.

   

[derek west]

If your in your fourth year of business in the service industry and only just making a profit I would be worrying 

And no, if you made a small profit in your second year some tax should have been due.
Your not to up on what ltd is  you said your accountant had advised for you to go ltd, no b####y wonder if youve never paid any tax, so go ltd  : But the tax you may owe as a sole trader will always be your own debt and cant be passed on to the new ltd co.

   

you can earn £6500 before you pay any tax, or am i missing something.

[Andrew Briscoe]

Its upto £7475 a year now Derek.

Andrew

[happy mondays]

wow £6500 and how does that pay the bills 

oh thats ok then its gone to £7475

is this some sort of a wind up   

You are going off topic, you make a profit and you pay tax, end of.

If you get investigated and cant prove your legitimate earnings that have paid for your lifestyle then you are in the s##t. Unless you live in a tent in the middle of a field £7.5k will not be enough 

 

[Andrew Briscoe]

I  know quite a few who have a ltd co, they get the tax limit 7.5k, so does their wives. total 15k + child tax credits, working families tax credits + child benefit comes to a fair liveable wage.
They dont have to pay for vehicles, fuel insurance and anything else they can get away with, they claim this every other year and alternate years they take their dividends and no benefits etc. They also have no mortgage.

A good lifestyle, its just how you work the system leagally, however its not for me, dont like claiming benefits.

Andrew

[Helen]

just for you paul, seeing as the suspence is killing you.

if i made  aloss in my first year, small profit  in my second year, and made a humble profit in my third year, would that help you work out how i made a profit THIS YEAR but manged to avoid paying tax. its next year i'm worried about as my business is growing at a predictable rate and can see why my accountant is advising me to go ltd. but at the moment i'm not to up on what ltd is all about so need to get some good advice elsewhere befiore committing.

I know what Derek is on about, but I can't explain it as I would be here all day! and anyway that is why we employ an accountant.
It doesn't apply to our cc business anymore, but does apply to another we have. (newer, only in it's fourth year!)
If your first year accounts show a loss, this loss can be rolled over in to the next year accounts, starting you with a negative figure. IF the loss were big enough it could wipe out any profit made over the next couple of years, as in those years you will have outlays too.
Our Accountant does the accounts in what I call a normal way and he also does a report on what the business is worth if we were to sell, this is then calculated in some way taking into account losses, outlays and incomes and we pay no tax against this newer business. It won't last forever, but as long as we make a major purchase/investment in this business in the first few running years, we will pay little or no tax against it at all. That's why we have an accountant who really does know what he is doing

[happy mondays]

I'm happy to wait for your detailed reply Helen 

Some points to note though, before you waste your day:

If you make a profit you pay tax (eventually, as sole trader like Derek) Ltd is another ball game and your amazing accountant should advise on this 
If you get investigated and cant prove how you pay for your lifestyle, then you are in the s##t
Ltd debts and tax liabilites are the companys not yours (apart from any personal guarantees) (see point one above)
Tax allowance has only just risen to the figures mentioned, is it enough for me, no not even with 4 of them!
I also have an accountc##t.... sorry accountant that alledgedly knows what he is doing 

My current one and past one/s have given good advice over the years and saved me alot of money.  But I have always, always had a tax bill when a profit was made.