Requirements of Limited Companies

[Newby]

Have you seen the CUK awards, its a shame that there isn't a vote for the grumpiest contributor....

This weeks award goes to DaveB...

[malvolio]

Actually, speaking as the resident grumpy old git, I think you will find I, like most of the regulars, usually do try and answer intelligent or focused questions with a degree of politeness but I reserve the right to be less than polite with questions along the lines of "Hey, I know nothing so how do I become a contractor" from someone who hasn't even worked out there's a difference between personal and company taxation.

Look on it as a basic test: if you're going to get all pissy and upset at being told the you're being a dumbass in a non-PC, stuff-you kind of way, you're probably not going to be much use as a contractor. And if you can't cope with the attitude on here, how the hell will you manage in an office full of permies who think you're on 10 times their money?

[themistry]

Why is it, I ask myself, that people who come on asking newbie questions that are well answered in the guides and stickys get sooooo angry when they're told to go and read them?

Im sorry, im not at all grumpy or angry, i appreciate being told where to look, that is exactly what I asked for (i.e. links etc appreciated). I just didn't expect an almost hatred felt tone as part of the response thats all.

TM

[themistry]

Look on it as a basic test: if you're going to get all pissy and upset at being told the you're being a dumbass in a non-PC, stuff-you kind of way, you're probably not going to be much use as a contractor. And if you can't cope with the attitude on here, how the hell will you manage in an office full of permies who think you're on 10 times their money?

Touché

[To BI or not to BI?]

Im sorry, im not at all grumpy or angry, i appreciate being told where to look, that is exactly what I asked for (i.e. links etc appreciated). I just didn't expect an almost hatred felt tone as part of the response thats all.

TM

Just put it down on contractor training and character building excercise and move on. You'll definitely need those skills if you want to be a contractor

[themistry]

So, now that its all done and dusted! In regards to a salary,

assuming u were earning a £100k contract, what would be the best way of "earning" this from your Limited company and what would you (or your accountant) need todo once a month to ensure it?

I understand that taking a minimum salary is fine, i.e. £15k, then taking dividends on top of this. However is this still allowed? What is to be made of corporation tax? Or does one make sure there is no "profit" left at the end of the year to be taxed on?

I think these were the little niggles I didnt see any comprehensive advice about.

Kind regards
TM

[malvolio]

This is an unanswerable question. It is perfectly permissable to take no salary at all and live on dividends. It is more sensible, especially to an accountant, to take enough salary to use up your 0% personal allowance (around £5k-ish, but it's a precise number) and the rest as divis.

Except, divis are not supposed to be a salary stream (in Hector's eyes at least) and there is a school of thought- borne out by the history of various tax investigations - where the low salary/routine divi route is a trigger for an investigation. So some people think it better to stay off the radar, pay a liveable salary (that pays net what you need to live on each month, not counting genuine business expenses of course) and take divis as and when you need/can afford them; the assumption is that behaving like a business is a good way to be seen as one. (Personally, I think investigations are triggered by sudden changes in patterns, rather than any particular model, or by poor timekeeping and/or quality of routine filings)

The low salary route is the most efficient and is fully legal. It's just a bit of a risk assessment exercise when nobody will admit what the risks really are.

[themistry]

So some people think it better to stay off the radar

Hi malvolio, thanks for the response. This is what I wanted to know, what are the recommended practices for "staying of the radar"?

Thanks
TM

[malvolio]

So lesson learned - ask intelligent, relevant questions, get proper answers...

[XLMonkey]

The radar is tricky, as its operated by HM Revenue and Customs, and they're not known for being the most helpful of souls. My view is that trying to second guess whether they will pick you out is pointless: you have to operate a strategy that you can justify to yourself. If you can do that (and you are operating legally), then HMRC can investigate all they want.

Everyone who does contracting takes their own view about what the best approach is: and they are known for defending their view energetically.

For what it's worth, my strategy is:
- I pay myself the National Minimum Wage
- I put an equivalent amount into a self invested pension each year
- I declare a dividend every six months, based on how well the company is doing. Sometimes the dividend is remarkably close to the amount I need to just reach the higher rate tax threshold. However, that's not why I do it (of course!)
- I take out the dividend in large chunks every quarter or so (remember: you can declare a dividend on one date and take the money out on another, or in instalments)
- I accumulate money in a high interest company savings account and will probably close the company in 2 years time and take advantage of the capital taper relief to release the money that's in there.

The only thing that I would strongly advise is: if you can avoid it, do not fall into the trap of taking as much money out as you can each month and spending it. You should always look to retain a significant amount in the company and never spend everything that you earn.