Finance Info for New Business Plan

Paul, welcome to the forum. If you are a limited company you shouldnt be paying yourself much of a salary, as extracting the funds as a dividend is much more efficient. If you are employing people +13% for employers NI on top of their wages. Interest is 4%, long term call it 5%, as they are likely to rise. Perhaps plus 1 or 2 % as your cant normally borrow at these levels. Corporation tax for the small company is at 19%. Break even analysis isn’t of great use to you as a service company. If you want to play with that, I would use one hour of your time as a unit at the £60/hour you quote. The variable cost will be nil. (You time is effectively free unless you could be doing something else with it when not working for your business) For a service provider of one, I personally would get a blank piece of paper, work out my rough costs per month. Then I will know how much I need to bill to cover my monthly costs. Add 25% for unexpected costs – there are always extras. Then I would take how much money I need to take home a month, gross up by 19% for corporation tax, and add it to the value worked out above. That is how much you need to bill a month to stay afloat, for profits of upto around £35k per annum. I must admit im not one for planning in detail, as reality often turns out very different to the plans so even the best ones tend to be out of date very quickly. For a service business I would concentrate on working out if there is a market for my service, how I get into that market (time and costs) and how much I can earn from it. I appreciate if you are trying to wow the bank manager with a detailed plan, you do need something pretty solid, and using a program such as the one you are is a very sensible approach for that purpose. I hope this is of use to you, Regards James Smith Chartered Accountant [url]www.jamesesmith.co.uk[/url] [url]www.uktaxshop.co.uk [/url] 01284 764436
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James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773

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Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT

James if the employer pays 13% NI and the employee pays 10% does that mean the total is 23%? the reason i ask is that if the top rate of tax is 40% add the NI and that gives a whopping 63% tax? I am beginning to loath this country emergency tax is quick to go on but they really drag their heels giving it back
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Nemesis, For an employee on the basic rate, they would pay 11% employees NI, plus 12.8% ers, plus the basic rate of tax of 22%. Ie total tax 35.8%, (which is why you don’t want to employ yourself if you run a small limited company, as you could be paying 19% as a divi) The top rate for employees is 41% (40% plus 1% NI) Employers pay 12.8% on anything over £91/week. So that’s a total of around 54%, and not 63%. Due to the way all the rates work, and the fact everyone has different circumstances this is very much "in general", for some people it may be different depending for example on their pension arrangements and their other sources of income. The rates and allowances are available on the Inland Revenue site: http://www.inlandrevenue.gov.uk/rates/index.htm Regards, James Smith Chartered Accountant [url]www.jamesesmith.co.uk[/url] [url]www.uktaxshop.co.uk [/url] 01284 764436
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James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773

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Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT

James - many thanks for the response! Wish I'd found this place a bit sooner...

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If you are a limited company you shouldnt be paying yourself much of a salary, as extracting the funds as a dividend is much more efficient.

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If you are employing people +13% for employers NI on top of their wages.

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reality often turns out very different to the plans so even the best ones tend to be out of date very quickly.

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Paul, you are correct that there have been changes to the taxation of dividends for small businesses (we should actually finally get the white paper tomorrow and will know the answers are, it looks like my original interpretations where slightly out) However the basic reason it is cheaper, is that a company pays tax at 19% (corporation tax). If you pay yourself a salary you will get taxed at an effective rate of around 36% as above [ignoring the effect of corporation tax relief] If you do pay a salary - and most directors pay a salary to use up their personal allowance of £4,745 this will be by operating a PAYE system. I would suggest, as with everyone operating a small limited company for the first time, you take some proper advice upfront to ensure you are doing everything not only correctly but tax efficiently. (I do a discounted "get you started" package for the new ltd company to help people get to grips with it) You may also like to consider if you would be better off starting as a sole trader, and incorporating if everything works out for you at a later date. This way you can keep it simple (ie cheap) to start with, and take advantage of the limited company structure when you are sure your business will continue. If you need some help, please let me know. Regards, James Smith Chartered Accountant [url]www.jamesesmith.co.uk[/url] [url]www.uktaxshop.co.uk [/url] 01284 764436
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James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773

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Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT

OK. Thanks for the info! I've got a meeting with a bank tomorrow, although I'm hoping to only need them for the account and the advice - given that I've got a private investor who may be willing to stump up the cash I need to get going. I wouldn't mind taking you up on your "get you started" package, but Essex to Suffolk is a long train journey! I intend to find somebody local to sort me out in the early days though, and I suspect that Lloyds may be able to help me find somebody local... Thanks again! All the best, Paul

Paul, Hope all goes well. I normally deal with client remotely by phone and email, so I wont be much use to you if you want face:face contact, although I tend to find a trip to their accountant isn’t top of most peoples list of top destinations for an afternoon out", and they actually prefer remote arrangements. Lloyds will undoubtedly have some contacts with local firms, although that doesn’t mean they will always fit your needs. I would suggest you shop around and find someone you feel comfortable with. Good luck Regards, James Smith Chartered Accountant [url]www.jamesesmith.co.uk[/url] [url]www.uktaxshop.co.uk [/url] 01284 764436
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James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773

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Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT

LOL! I've got no intention of being scared of accountants! It's the Office Managers who freak me out - knowing where everything is, and being able to hold several telephone conversations at the same time... Thanks again! Paul