Nickctp
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| posted on 4/4/13 at 07:23 AM |
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New Company / Corporation Tax
Morning all,
A friend and I are wanting to set up a new company. Ideally we need to be VAT registered because our main targets are other companys who will prefer
dealing with a VAT registered company for their benefit.
Now - if we set up a Limited company - we will need to pay corporation tax, VAT, And TAX on our dividends - is this correct?
We are not wanting to cheat the system - but is there any way we can "start the business" without all the implicated Tax costing? It will
be a partnership, so the profits will be 50/50. Could we both register as sole traders and just one of us become VAT registered? We are wanting to
tread the field a little before going all the way with the accounts/tax side of things - if that makes any degree of sense???
We both know our market - but not the business / tax side of things.
Any info all appreciated guys.
Cheers
N
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DarrenW
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| posted on 4/4/13 at 08:13 AM |
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Its always best to get advice from your Accountant.
Tax isnt really a problem as long as you remember its not your money.
You pay Corporation tax on gross profits before dividends are deducted. It depends how much of a dividend you take as to how much self assesment tax
you will end up paying. Be careful how much of a minimum wage you take, dont assume you can take the full tax free allowance set by inland revenue,
you need to be below it so as not to trigger NI payments etc. Again accountants will advise correct amounts.
Dont confuse Corporation tax and Self Assessment tax. Corp Tax is paid by the company, the other is you personally as it is classed as drawings
(pay).
Im not aware of any way to start a company and get exemption from these taxes.
Oh - one last thing. Be mindful of when the first tax payments will be due. At first they seem like ages away, and you will have loads to do to make
the company great so you probs wont give them much thought. HOWEVER - that time comes round fast. Start now putting money aside from your company
income and personally on any drawings you make. Also be aware that when you first pay your income tax (personal self assessment), you will pay the
previous periods 12 month tax and ALSO an extra 50% on account. A second 50% bill will be payable 6 months after. It is not normal to get an exemption
from this and it could catch you out if your drawings are high.
I havent done a partnership. I have been told however it is very important to draw up a very clear contract between partners. Remember the old adage -
there are no friends in business. Just think how many best mates have fell out over daft amounts of money after the annual cricket / rugby trip etc.
Now think about scaling that up a 1000 fold when you have the pressures of running a firm and all of the money transactions. In business its just
about impossible to keep everything equal if the split is 50 50. Some partnerships work fantastically though so dont be put off, just keep your eyes
open.
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big-vee-twin
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| posted on 4/4/13 at 09:15 AM |
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Limited companies pay their directors in a basic salary and then dividends.
Dividends can only be paid out of proffits.
Corporation tax is paid at roughly 20% of all monies invoiced (doesn't have to be paid) less any expenditure.
Partnerships are taxed as per normal the individual pays the tax in the usual way. But don't need to publish full accounts like a limited
company does.
My company was an LLP for three months and we changed over to Limited very quickly. Reason is a Limited company is an entity and is responsible for
its debts not you. As a Partner you are jointly liable for all the partnerships liabilities including your partners liabilities too.
So if you want to protect your house from the Bailiffs become a limited company.
There is very little difference in the amount of tax you pay, its just different in the way you pay it.
Very rough explanation, seek advice from an accountant as previously advised.
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Brook_lands
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| posted on 4/4/13 at 10:25 AM |
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Sent U2U
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Not Anumber
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| posted on 4/4/13 at 10:53 AM |
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I weighed it up when i was setting up a small business a few years ago and decided to go the Ltd company route largely because i felt it would be
better to be VAT registered as a limited company. As it turned out we didnt need to VAT register due to a combination of low turnover and non foreign
clients but there never seemed to be any pressing need to change it into a partnership/ LLP so we left it as a Ltd.
As far I can see the only real difference in overhead between the two is that a Ltd Company must have it's annual accounts produced by an
Accountant.
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SteveWallace
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| posted on 4/4/13 at 11:45 AM |
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The tax advice that I had was (assuming that you do not have much other income for personal tax threshold purposes) to pay yourself a salary up to
just over the threshold where you have to start to pay NICs (be careful because this is now different to the income tax threshold) and then take the
rest in dividends. This allows you add years to your NIC account which will help when you get to state pension age, but without incuring a lot of
employee and employer NICs. If you do the maths taking into account the corporation tax, income tax and employer/employee NIC's rates, its a
bit more efficient.
As said elsewhere, there is no substitute for getting advice from an accountant. There are loads of them around and when I was selecting mine, I
visited a few of them, explained my circumstances and then asked them what they would do and how much they would charge. As well as finding out which
accountant I felt most comfortable working with, I found that it was a great way of getting free advice.
If you have a risk of liabilities that might come back and bite you, then Ltd company is the way to go. Depending on your market you may also find
that some customers will only trade with a Ltd company.
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JonnyS
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| posted on 4/4/13 at 12:07 PM |
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As a seasoned accountant, I have nothing much else to add to what has been said. That's unusual  There are many reasons to become a limited
company as explained above. The main tax advantage over a sole trader/partnership is the NI saving which can be £000s of pounds.
See a good local recommended accountant and go from there. There is no way out of registering for all these taxes/deductions, but a good accountant
will leave you to run your business and forget about VAT, corporation tax, personal tax, payroll etc.
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MikeR
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| posted on 4/4/13 at 12:44 PM |
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simple rule I follow, what ever I invoice, when I get paid I put the VAT amount twice into a savings account. the first lot covers the VAT, the second
lot covers the corporation tax. reality is both taxes will be lower than the amount I transfer but its better to be in my position than the other way
round.
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Nickctp
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| posted on 4/4/13 at 01:49 PM |
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Thanks guys,
Pretty much everything answered there. It seems its all down to the accountant. My other half is an accountant but unfortunately she is a management
accountant which is apparantely very different to to an accountant who "does your books" !!! All very confusing. But thanks again - much
appreciated.
N
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Nickctp
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| posted on 4/4/13 at 01:50 PM |
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quote:
Originally posted by MikeR
simple rule I follow, what ever I invoice, when I get paid I put the VAT amount twice into a savings account. the first lot covers the VAT, the second
lot covers the corporation tax. reality is both taxes will be lower than the amount I transfer but its better to be in my position than the other way
round.
Good info!!
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