Shall I wait until April?

[Moscow Mule]

I'm currently using an umbrella, but have now decided to start my own company.

This year I've already passed the threshold to be a higher rate tax payer.

So the question is - should I wait until April to use the new company for invoicing/payment of my services or jump straight in?

My main area of concern is that as a higher rate tax payer any dividends paid to me will be taxed so I'll lose the benefit of incorporating.

My thinking at the moment is, set up the company, line up accountant, VAT registration etc. but not use it until April - is this a good idea?

[Old Greg]

I'm currently using an umbrella, but have now decided to start my own company.

This year I've already passed the threshold to be a higher rate tax payer.

So the question is - should I wait until April to use the new company for invoicing/payment of my services or jump straight in?

My main area of concern is that as a higher rate tax payer any dividends paid to me will be taxed so I'll lose the benefit of incorporating.

My thinking at the moment is, set up the company, line up accountant, VAT registration etc. but not use it until April - is this a good idea?

In my inexpert opinion, it depends on your savings or requirements for income before the end of the tax year. If you can afford to, you could not take any divis until the beginning of 07/08 and then take a big pile from your profits from 06/07. If you want to build up a cash reserve, this may be an option and after 2 or 3 years (as long as the rules don't change) you can close the Ltd. down and use the taper tax erelief thingy to extract the cash from you Ltd. in a favourable way. If you need an income before April, this probably isn't a goer. If I've got this wrong, I'd be happy if someone can educate me.

[Bluebird]

I'm currently using an umbrella, but have now decided to start my own company.

This year I've already passed the threshold to be a higher rate tax payer.

So the question is - should I wait until April to use the new company for invoicing/payment of my services or jump straight in?

My main area of concern is that as a higher rate tax payer any dividends paid to me will be taxed so I'll lose the benefit of incorporating.

My thinking at the moment is, set up the company, line up accountant, VAT registration etc. but not use it until April - is this a good idea?

You've gone past the 40k threashold already ? It's only 4 months into the fiscal year ??

[Moscow Mule]

You've gone past the 40k threashold already ? It's only 4 months into the fiscal year ??

I'm not sure for certain, but I expect so and I can't get out of invoicing August & probably September via the umbrella so that will definitely put it over the edge.

OG - cheers, not a bad idea. I'm about to sell my flat so that will make me cash rich for the foreseeable future too. Hmmm better get to work sorting stuff out then!

[minstrel]

My main area of concern is that as a higher rate tax payer any dividends paid to me will be taxed so I'll lose the benefit of incorporating.

The main benefit of incorporating is reduced employers NI contributions (12.8%).

If you continue with umbrella you will pay employers NI (12.8%) plus employees NI (1% over high threshold) plus 40% tax on all your earnings over higher rate threshold.

If you go limited now and draw dividends this tax year you will save the 13.8% NI and just pay around 40% on higher rate earnings.

If you go limited now and hold on til next tax year before drawing any dividends you will avoid any additional 40% tax this year and can give yourself a big dividend payment on 6th April.

Definitely go limited now and don't wait until April.

Even if you paid yourself maximum amount in dividends this tax year you would still save the 13.8% NI that you would be paying via brolly.

Most tax efficient would be to go limited now and not draw any dividends over higher rate threshold until next tax year.