Full time employed AND starting a Ltd

Hi, I am not an accountant but I do know that a Ltd might not be the best way to go, as you are just starting out. I have had Ltds in the past, now I am not (sole trader) but our turnover is into six figures and our accountant is still saying no to Ltd, however it may be on the books next year. What is your business? Richard Mellor www.augusthomefinders.co.uk www.augustcountryproperties.co.uk www.country-properties-for-sale.co.uk www.planetairedale.com
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Richard Mellor
www.augusthomefinders.co.uk
www.planetairedale.com

Thanks for such a quick response. Still sat at work! I'm a software developer by trade but on the side have developed web sites for other businesses (low volume, high value) and have a number of my own sites that produce revenue (medium volume, low value). I've a plan to merge the two with an idea that has low costs (apart from my time!) and good returns. I'm expecting profitability of some sort in the first year. I'm just really keen to formalise all this work I do.

Davey, As a higher rate tax payer, you could pay 25% tax on profits of £10,000 within a limited company rather than 40% as a sole trader so it can be tempting. There are costs involved in doing so any many people find operating as a sole trader is beneficial, especially in a start up phase where losses can be offset against your income. in answer to your direct questions, (1) yes this would be the suggested route for you, tax is 25% on dividends as a higher rate tax payer - although you can of course opt to leave the money in the company and extract at a later date - ie delay the tax payment. (2) no, you have to set up your own PAYE scheme, and you will pay a lot of more tax. It does sound like you are already trading, and this really does need to be sorted out if you are no already registered with the IR. if nothing else you may be able to offset losses against your income. Where Richard's accountant is getting it is if you trade as a sole trader for 12 months and then 24 months, there are some tax breaks on selling the "goodwill" of you company to the limited company. This is complex, but the upshot is it can save you money in the longer term. It is a trade off between short term income tax, and deferring income tax, and ultimately capital gains when you sell the business/wind it up. It gets very involved. O and regarding why the tax rules are so complex – that because civil servants make them up, and always draft the things quickly under political pressure and then spend years and years plugging loopholes us devious accountant find in the rules. Anyhow, If you need a hand getting going I would be happy to give you a few minutes of my time to point you in the right direction. Regards, James Smith Chartered Accountant www.uktaxshop.co.uk 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 (et al), Really appreciate the time you've taken to respond. It seems as though taking a dividend could be the best way. Can I just clarify some points: It is valid to never take a salary from the Ltd? Do you still have to have a PAYE scheme and do PAYE returns or can you just state that you paid no salaries at year end? Thanks Dave

You dont need a PAYE scheme if there is no salary. It actually makes things a bit easier. James Smith Chartered Accountant www.uktaxshop.co.uk 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