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Starting a limited company - where to get info?

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crispybits
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Starting a limited company - where to get info?

Post by crispybits »

Hi peeps

My latest job (yay! Exciting!) is going to be on a consultancy contract, where the customer expect me to have my own limited company and invoice them for the work I'm doing monthly. I will then pay myself a salary from that company (and the company will be subject to paying employers PAYE and NI contributions, corporation tax, etc etc. I'm happy with the deal as the daily rate I get to charge is very nice even after accounting for these kinds of things.

However, this is my first ever stab at running a limited company, and despite reading and rereading the HMRC website and several other places for advice about the most tax-efficient way to do this. So I have a few questions:

1) I assume that I will want to find a reasonably priced and competent accountant (through word of mouth recommendations from friends who also run their own companies)? Or is this something that if I do my research properly I would be able to do myself? If I can do it myself are there any more helpful guides and places to do research than HMRC?

2) I keep reading that I should pay myself a minimal salary to keep PAYE and NI charges down, and use dividends to top up my small pay packet each month? Is this still good advice or outdated?

3) Finally, and I assume this isn't possible but figure I'd check, rather than paying dividends which have corporation tax applied before they can be paid, is it not legal to either set myself as a holder of (for example) 100,000 shares from day 1 and then have the company buy those shares back from me as capital so I pay capital gains tax (only 2% different from income tax or corp tax but gives me just over 10K in additional tax free allowance each year)? Or alternatively to pay myself in stock options which I deliberately set a low value on when I draft my own contract of employment, and then later take up those options at the low value and sell them back to the company for a higher rate?

(I'm pretty sure question 3 is breaking all the rules but I want to check before I miss out on 2K+ because I ended up paying too much tax)

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Vid
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Re: Starting a limited company - where to get info?

Post by Vid »

there's some advice here that I had about 6 years ago that may be of use, will go look for it

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Re: Starting a limited company - where to get info?

Post by Vid »

Would have been 1st or 2nd quarter of 2007, can't find it but do remember asking the question here.

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Re: Starting a limited company - where to get info?

Post by Vid »

Now found it (couldn't see by looking but "search" did it's job)

setting-up-as-a-limited-company-t22342.html" onclick="window.open(this.href);return false;

may or may not be helpful

mikeg13
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Re: Starting a limited company - where to get info?

Post by mikeg13 »

It was a long time ago had business and am sure things very different now, but if have read your opening post correctly you will only have 1 client, didnt think that was allowed, cant remember exactly what problem was, but should double check everything before you commit.

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Re: Starting a limited company - where to get info?

Post by Surprised »

mikeg13 wrote:It was a long time ago had business and am sure things very different now, but if have read your opening post correctly you will only have 1 client, didnt think that was allowed, cant remember exactly what problem was, but should double check everything before you commit.

Rule used to be that if you only had one client then you were deemed to be an employee of that company for tax purposes. Not sure if that has changed

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Re: Starting a limited company - where to get info?

Post by crispybits »

Yeah I have no problem if that's the case (I'll just pay the full profit after expenses the company makes to myself less the employer NIC contributions as a salary and pay PAYE and NIC exactly as anyone else would - from everything I'm reading it's fine to do it that way even through a intermediary company like this because the tax man doesn't care as long as he gets his pound of flesh) - I'm not trying to dodge tax, just make sure I'm not paying more than I legally have to once you add up fees for professionals and the HMRC's wedge.

I guess I really just need an accountant to set me up with a set of books I understand how to fill in that will comply with the HMRC requirements (possibly additionally including some form of payroll recording/calculation), and then to double check my numbers before I do my annual tax return.

Any accountants active on FISO (I know there are several) looking for this type of work right now? Obviously you'd have to be able to demonstrate that you've done similar work for others and they are happy with your services. If so then feel free to PM me and we'll see if we can work something out.

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Re: Starting a limited company - where to get info?

Post by blahblah »

Surprised wrote:
mikeg13 wrote:It was a long time ago had business and am sure things very different now, but if have read your opening post correctly you will only have 1 client, didnt think that was allowed, cant remember exactly what problem was, but should double check everything before you commit.

Rule used to be that if you only had one client then you were deemed to be an employee of that company for tax purposes. Not sure if that has changed
Was still true a few years ago.

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crispybits
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Re: Starting a limited company - where to get info?

Post by crispybits »

Oh and thanks Vid for digging that thread out - it's a little outdated in places from the info I'm getting from other sources but very helpful all the same :)

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Re: Starting a limited company - where to get info?

Post by unc.si. »

Sounds like you'll get caught by IR35, but it sounds like you already know that. Can't really help as I deal with large corporates on the whole, rather than small co's and startups (plus I'm in M&A and it's been a long time since I actually did any 'accounting', despite being an accountant by profession).

I would just say though that a good accountant should save you more money than he costs you in fees, compared to doing it yourself (and it'll save you a lot of time and grief) so talk to one sooner rather than later. As you say, personal recommendation is key. I've been involved with many small deals where the vendor's small, local accountants have bordered on incompetent, but you can also get some excellent ones. Where are you based btw?

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Re: Starting a limited company - where to get info?

Post by crispybits »

I'm in St Albans (just on the northernmost edge of the M25 between the M1 and A1)

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Re: Starting a limited company - where to get info?

Post by TAXMAN »

crispybits wrote: 2) I keep reading that I should pay myself a minimal salary to keep PAYE and NI charges down, and use dividends to top up my small pay packet each month? Is this still good advice or outdated?

3) Finally, and I assume this isn't possible but figure I'd check, rather than paying dividends which have corporation tax applied before they can be paid, is it not legal to either set myself as a holder of (for example) 100,000 shares from day 1 and then have the company buy those shares back from me as capital so I pay capital gains tax (only 2% different from income tax or corp tax but gives me just over 10K in additional tax free allowance each year)? Or alternatively to pay myself in stock options which I deliberately set a low value on when I draft my own contract of employment, and then later take up those options at the low value and sell them back to the company for a higher rate?

(I'm pretty sure question 3 is breaking all the rules but I want to check before I miss out on 2K+ because I ended up paying too much tax)
2 - As long as the consultancy contract the company has is outside of IR35 (i.e. it is a self-employed contract and not an employed contract) then extracting company profits to you by a nominal salary and balance by dividends is still generally best advice.

3 - These strategies won't be helpful to your tax position. Most one-person consultancy companies (that are outside of IR35) end up paying under 20% tax on the consultancy income just by using nominal salary/dividends (and legitimately sometimes using spouse's allowances/rates).

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chrispyb
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Re: Starting a limited company - where to get info?

Post by chrispyb »

I am shortly going to work, however can offer an alternative method of receiving your income through an 'umbrella company' should IR35 be an issue. This would be a far simpler alternative than incorporating your own ltd company, should IR35 apply and the Umbrella will be able to offer you the ability to process a portion of your income received as tax free expenses. This can include mileage to and from site, subsistence (food and drink allowance) and other legitimate expenses that are incurred as part of your assignment.

Whilst the Limited company route (PSC) model usually provides greater benefits (where IR35 is not an issue) the umbrella route is the next best alternative. The Umbrella will invoice the client on your behalf for services; complete all the necessary payroll calculations as a PAYE employee and forward payment to you. Should you wish to look into this route further PM me and I shall send you some further information as I happen to run an Umbrella that processes payments to contractors working in a multitude of industries. Not sure if I can self promote, but the website is http://www.masterpay" onclick="window.open(this.href);return false;. co.uk I will be sure to look after you if you do choose to go down this route :D

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Re: Starting a limited company - where to get info?

Post by TAXMAN »

blahblah wrote:
Surprised wrote:
mikeg13 wrote:It was a long time ago had business and am sure things very different now, but if have read your opening post correctly you will only have 1 client, didnt think that was allowed, cant remember exactly what problem was, but should double check everything before you commit.

Rule used to be that if you only had one client then you were deemed to be an employee of that company for tax purposes. Not sure if that has changed
Was still true a few years ago.
Rubbish.

As long as the company's contract with the one client is on a self-employed basis then your company would fall outside of IR35. Hundreds of thousands of one-person consultancy companies operate legitimately outside of IR35 and only have one client during the year.

On the other side of the coin, if your company has a few clients during the year but the contract with each is on an employed basis then the income from each is subject to IR35.

That said, if your company has a number of clients during the year then the chances are it's more likely to not be subject to IR35 but as I said you do need to look at the contract with each client.

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Re: Starting a limited company - where to get info?

Post by stuboy »

Similar to chrispyb (whose name is freakily similar to yours), when I worked in recruitment placing contractors, many of the newer contractors started off going via an umbrella company. It's definitely a little more expensive as you pay them a fee, but they do all your accountancy, tax, payroll etc. some people prefer it until they know they want to be life time contractors, then running your own business with the set up costs etc are worthwhile.

For balance, companies such as http://www.parasolgroup.co.uk and http://www.optimaumbrella.co.uk were who I used.

There is a site that talks about umbrella companies, but not sure how it is funded so don't know if top 10 list is paid advertising or genuine feedback from contractors

http://www.umbrellacompanies.org.uk

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Re: Starting a limited company - where to get info?

Post by crispybits »

Thanks for all the replies and PMs I have had so far regarding this everyone. All very helpful advice and I'm progressing fast up a steep learning curve thanks to all your information.

I need a few days now to try and organise this information and digest it all properly and I will come back to this thread next week with an update for anyone who is curious or is in a similar situation so that this thread can be of help to others in similar situations.

In the meantime feel free to keep chipping in if you have anything relevant to add - this is one reason I stuck with FISO over some of the other forums I've dipped into and out of over the years - you're all brilliant! (and crazy, but in a good way ... most of the time :lol: )

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Re: Starting a limited company - where to get info?

Post by crispybits »

OK well I promised an update so here it is.

The contract checked out OK for IR35 so I'm clear of that - they have a lot of people on these kinds of contracts, some for several years, and none of them have ever had problems with the tax man.

I've hired an accountant who seems very good so far (of course they haven't really done any financial work yet, just answered a whole shedload of questions, so while I'm not worried at all that they will be fine the proof of that is still to come)

Setting up the company only cost £15 so no worries there. Sitting down this weekend to sort out all the tax stuff like registering the company with HMRC etc and once that's done hopefully it's just a case of keeping the books I've been provided with up to date and letting the money roll in :)

I've seen in a few places that if you're outside IR35 it's better to keep the dividend payments quarterly but that's something I'm sure my accountants will answer when I raise it with them. Something about it makes it look less like monthly salary payments and more like business dividends. Don't know how important that is but once I get through to the end of March with a directors loan or two I have no problem doing things that way if it really is preferable so we'll see.

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Re: Starting a limited company - where to get info?

Post by WilBert »

Cograts mate, I'm taking it that you won't miss your other job tonight of all nights :wink:

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Re: Starting a limited company - where to get info?

Post by bluenosey »

crispybits wrote:I've seen in a few places that if you're outside IR35 it's better to keep the dividend payments quarterly but that's something I'm sure my accountants will answer when I raise it with them. Something about it makes it look less like monthly salary payments and more like business dividends. Don't know how important that is but once I get through to the end of March with a directors loan or two I have no problem doing things that way if it really is preferable so we'll see.
Yeah, you don't want monthly dividends ideally. Just extract the dividend whenever there are profits in the company. No need to follow a pattern. After all, a salary could be paid quarterly too. Talking of which, don't forget to pay yourself a nominal salary to use up some of your Personal Allowance and get your one year NI credit towards your State Pension (think it's £7,956 ish for 2014/15 - your first full year)

Any queries, especially more tax related, just shout :)

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Re: Starting a limited company - where to get info?

Post by stevejtr »

I'm using a personal umbrella Co at the moment. PM me if you want the details.

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