VAT question

[wood1e]

I would agree with all of that expect that the total tax should be considerably lower if you do it right. If you run a limited company BADLY, then yes you will pay more tax AND have the extra admin hassle AND pay more to the likes of myself to run it.

However if you run one properly then the tax savings should be at least 2-3 times the extra accounting costs. but you have to be profitable enough to make it work out if its mainly a tax driven incorporation.

How is this achieved when the tax you pay is written in stone?

Even paying dividends, rather than PAYE, is not more cost effective than being self employed.

Plus end of year accounts £450 (my experience of LTD Accounts) £150 self employed.

And that's if you employ an accountant which you don't need to do unless over £5million turnover, or complicated trading, whereby professional advice is required.

self employed save £15 not having to go to Companies House.

So are you saying one should run a company to appear not to make profits?

Which would negate Corporation Tax, but then obviously with no profits there would be no dividend, which brings are earning back to straight forward PAYE...!!!

Then of course there is 'Employers NI'. Which if there were no profits and a salary was being paid, then there is that little additional tax that needs to be paid!!!

As I stated earlier, there are elements to a larger, ie bigger than a start up and smaller than £5mil turnover that may require an accountant...But not essential.

And if it were me I would not bother with LTD (unless there was huge risks), until or unless I was turning over £68000 (the VAT threshold)

So what is a badly run company?

What are the more tax efficient ways of working a company?

[James Smith]

Wood1e I am afraid I do this as a day job - all my clients are under £5mill t/o (and actually the tax benefits may even be the other way if you have profits much over £300k - depends on your circumstances) and the tax is certainly a lot lower.

Your £450 for limited company accounts is very cheap - I wonder if they actually knew what they where doing. Was this really a firm of Chartered Accountants? There are lots of "accountants" out there who really don't have a clue as this is not a protected term.*

I think your post is actually an extremely good advert for my profession as you are clearly very confused about tax issues and what an accountant does. Much of the tax savings come from paying a lower marginal rate of tax (21% in a company as corp tax vs 28% as a sole trader in income tax and NI) using the dividend distribution route. But there are lots of other advantages too with a company.

**I should point out there are lots of competent accountants who have not passed their exams and are not Chartered but you always have to ask if they are any good, why they didnt do their exams, or more likely failed them. Might be good reasons, might just be a bit crap!

[wood1e]

I am surprised you have any client with your condescending attitude!!!

I will tell the chartered accountants in my area they do not charge enough. They will be over the moon

And possibly they do charge more for 'larger' companies, but I did say until a 'business' is turning over more than the VAT threshold, there is no need to be limited...with the qualification on business risk.

Also and you will have to bare with me here...being that I do other things everyday!!!

Dividend tax is 10% on £37400, say that was the complete profit for a limited company, they would then have to pay 21% on that profit...so the combined tax rate of both company and shareholder would be 31%!!

Is that not greater than 28% figure.

Unless of course you pay corporation tax on profits net of dividend?

Just as a side note, if a shareholder/director does not pay themselves enough to qualify for NI then they may miss out on future state benefits....that is presuming there will ever be any!!

There would then be Employers NIC to pay, as the director/shareholder has raised their PAYE pay to bring in sufficient NI contributions.
This can all add up to a rather large tax burden for a limited company of:

10% on dividends
11%(ish) Employees NI
12.8%(ish) Employers NI
21% Corporation Tax
That makes 54.8%....?

Obviously this is all based on percentages, so the actual money may be lower, but I still don't see it, being that there are even greater tax efficiency in what expenses can be allocated prior to profit for a self employed person.

And to some extent, although this is moving even further of the original OP the legal status of a limited liability company may offer less protection that in previous decades.

As to whether being 'Chartered' adds any weight to a person/firm being qualified to run or know if a company is being run badly or well? That I feel that is open to question.

Certified Accountants, may argue that learning/working on the coal face gives them the upper hand in the 'Chartered' skates. Then of course there are a few other forms of accountants that would question the need for Chartered status as the sole 'professional' font of all business/tax/legal entity knowledge.

Having passed exams shows an ability to learn, having spent three years as an audit junior does not mean you know the best way to run a business in practical terms. And before you get really flustered, I mean on it's own it does not.

It really does all depend on the on the business owner, his aversion to risk (if there is any) the quality of any accountant, the size of the company.

And too repeat myself, I would never suggest an 'accountant' is never or not needed.

All I was saying at the smaller end of the scale, being limited does not necessarily save money/time.

[James Smith]

As I say Woode I am afraid you simply do not understand how the tax works.

Its sounds like you have the some patchy knowledge in the area leading to incorrect conclusions.

[wood1e]

Still waiting for you to answer the questions rather than presume what you think you know about me...or accountants chartered or otherwise that I may know?

If I have my tax, both personal, dividend and corporation tax incorrect, please make yourself happy and correct me!!!

[James Smith]

Wood1e

other readers may be mislead by your original post hence my original comments.

If you want to have a silly argument with someone then there are plenty of forums where you can do that, I am simply not going to play ball.

Regards,

[Indizine]

I would agree with James, an accountant plays a role, they are there for a purpose and yes, like any profession, there are rubbish ones and there are considerably more excellent ones. They work your tax payments to your advantage whilst staying within the legal requirements.

There is not black and white rule for whether limited is your best option or not. You should be assessed individually based on your circumstances. Certainly from what the OP states, going Ltd is bound to be a consideration, but not necessarily an expectation.

[wood1e]

Silly is a matter of opinion!!... As I don't believe I was arguing, just stating what I thought was right concerning the tax matter and self employment

[alexwilliams]

Hmm thanks for the replys...i think lol.

I am going to have a meeting with someone at the "business link" next week. I assume this place could give me the best advice?

There is only me and my friend doing this business and we wont have any future employees If that makes a difference?

Our profit is estimated at around £40,000 - £48,000 for this year