Simplest use of a LTD company

[RichFuller]

If your work is irregular, i.e. not 9-5 every day of the week for months at a time, then you could pay more National Insurance via an umbrella than you would as director of your own company. For example, if you earn £1000 a week but only work one week a month, then roughly speaking, as a director you will be charged NI as someone with a £12,000 a year income, but via an umbrella you could be charged at rates appropriate for someone who earns 52K a year.

This is because, unlike income tax which is always ultimately based on annual income, National Insurance is based on your pay period, weekly or monthly for most people. The calculation assumes you are going to earn the same amount every other month of the year. There's no refund if you don't.

(A company director usually has an annual pay period, so pays the same NI regardless of how smooth or irregular salary payments are within a year.)

I found this out the hard way, when I was doing intermittent work for a former client. I eventually did a calculation that showed that if I was going to work more than something like 25 days in a year, my overheads would be less running a company than using an umbrella.

I don't think there's any legal reason you couldn't be a self-employed supplier invoicing your own company, but there's also no real advantage to doing so once you've taken the trouble to set up a company. It would be more tax efficient and less admin to just take salary and dividends like everyone else.

HI,

all valid points. The work I do varies currently from a day to max of a couple of weeks at a go. Sure there will be inefficiencies but it looks like the best option is to start with umbrella co to start building relationships with these potential employers and then look in the future if enough of the hypothetical work materialises to justify the LTD company route.

Thanks.

Rich

[IR35 Avoider]

If your work is irregular, i.e. not 9-5 every day of the week for months at a time, then you could pay more National Insurance via an umbrella than you would as director of your own company. For example, if you earn £1000 a week but only work one week a month, then roughly speaking, as a director you will be charged NI as someone with a £12,000 a year income, but via an umbrella you could be charged at rates appropriate for someone who earns 52K a year.

This is because, unlike income tax which is always ultimately based on annual income, National Insurance is based on your pay period, weekly or monthly for most people. The calculation assumes you are going to earn the same amount every other month of the year. There's no refund if you don't.

(A company director usually has an annual pay period, so pays the same NI regardless of how smooth or irregular salary payments are within a year.)

I found this out the hard way, when I was doing intermittent work for a former client. I eventually did a calculation that showed that if I was going to work more than something like 25 days in a year, my overheads would be less running a company than using an umbrella.

I don't think there's any legal reason you couldn't be a self-employed supplier invoicing your own company, but there's also no real advantage to doing so once you've taken the trouble to set up a company. It would be more tax efficient and less admin to just take salary and dividends like everyone else.

[northernladuk]

It does look like that perhaps starting by using an umbrella company(and maybe later look at ltd company thing), I've read pages of threads here about them, I'll have to go back through and find one that has good reputation.

Thanks again.

Rich

Contractor Umbrella. The MD (Lucy) posts on here very regularly (in the Umbrella area) and I've used them personally so they are your first stop.

[RichFuller]

Hi,

thanks for the replies.

To answer the various questions.

Cirrus:
I mentioned the fact I had been doing the self assessment because I wanted to explain that I knew a bit about dealing with expenses etc. ie basic accountancy.

I don't have a ltd company I was just thinking about it as a way of dealing the the potential clients.

I assumed that if such a company did exist I could direct invoice it the same way I invoice some current clients, looks like I was wrong.

Maslins:

Yes, there are potential clients who won't deal with sole traders, in theory if I got lots of work from them then I accountancy fees would not be much of a problem, but as the work is hypothetical it's whether to spend money now(and monthly from now on).


It does look like that perhaps starting by using an umbrella company(and maybe later look at ltd company thing), I've read pages of threads here about them, I'll have to go back through and find one that has good reputation.

Thanks again.

Rich

[Maslins]

So just to clarify you have some (potential) clients who refuse to deal with you as a sole trader? That potentially makes sense, just want to be sure I understand the situation.

If so, as Old Greg suggests, probably makes more sense to do those via an umbrella.

A Ltd Co is quite a lot of hassle, so if you were going to set one up, I'd recommend putting all your work through it. Would be easier to do that than have both a Ltd Co and a sole trader business.

[Cirrus]

I ... had a nice accountant who did the filling in of self assessment forms for me until a few years ago when she unfortunately passed away. Since then I've done my own self assessment online every year.

What's the relevance of this? Is this causing a problem?

I see it like this(in my ideal world), I use LTD company to invoice those clients £XX/day, then directly invoice own LTD company the exact same amount and handle tax etc via self assessment.

Why are you talking about two companies - what's wrong with just one? Does 'own LTD company' already exist?

If you have a company, it must send accounts to Companies House and the Revenue. It must also make PAYE returns to the Revenue. You can't deal with this purely by self assessment as a company can't give people money except via defined, reportable routes eg PAYE or dividends.

Set up a company (very easy) and choose an accountant that doesn't charge you much. To reduce your accounting charges do all the work yourself ie record all your transactions with GL codes and present the accountant with the data ready to plug into their accounting package.

[Old Greg]

Hi,

I've been bumbling along as a freelancer in video production for over 20 years. I always been self assessment and had a nice accountant who did the filling in of self assessment forms for me until a few years ago when she unfortunately passed away. Since then I've done my own self assessment online every year.

My turnover has never been massive, but I've got by. Recently I've tried getting new work and certain companies will only work with LTD companies. So I've looked into setting one up and though that bit is straightfoward I'm unsure about the amount of work that is possible to do oneself.

What I'd like to do is continue working with current clients in my usual self assessment way, and have a LTD company for those who require it. I see it like this(in my ideal world), I use LTD company to invoice those clients £XX/day, then directly invoice own LTD company the exact same amount and handle tax etc via self assessment. So the LTD company literally has no profit and no loss. In theory it should not pay any corporation tax because of this(I think that's right).

I realise this is not the most tax efficient method, but as I said my turnover is not that big. If it does massively increase then I would look into proper accountants etc. I spoke to someone at one of the recommended contractor accountancy firms a while back(I can't remember which one) and they nicely told me that in their opinion based on earnings it wasn't worth my while using them. Also not interested at the moment in registering for VAT(I don't tend to personally buy much for business use - and what I do I cover in the self assessment form)

I was wondering how realistic this idea is. I'd probably use Freeagent to handle accounts etc. As I said I've been doing self assessment myself for over 5 years.

Any opinions/experience on this as an idea?

Thanks.

Rich

Use an umbrella if clients will only deal with a Ltd? Put the income into a pension.

[RichFuller]

Hi,

I've been bumbling along as a freelancer in video production for over 20 years. I always been self assessment and had a nice accountant who did the filling in of self assessment forms for me until a few years ago when she unfortunately passed away. Since then I've done my own self assessment online every year.

My turnover has never been massive, but I've got by. Recently I've tried getting new work and certain companies will only work with LTD companies. So I've looked into setting one up and though that bit is straightfoward I'm unsure about the amount of work that is possible to do oneself.

What I'd like to do is continue working with current clients in my usual self assessment way, and have a LTD company for those who require it. I see it like this(in my ideal world), I use LTD company to invoice those clients £XX/day, then directly invoice own LTD company the exact same amount and handle tax etc via self assessment. So the LTD company literally has no profit and no loss. In theory it should not pay any corporation tax because of this(I think that's right).

I realise this is not the most tax efficient method, but as I said my turnover is not that big. If it does massively increase then I would look into proper accountants etc. I spoke to someone at one of the recommended contractor accountancy firms a while back(I can't remember which one) and they nicely told me that in their opinion based on earnings it wasn't worth my while using them. Also not interested at the moment in registering for VAT(I don't tend to personally buy much for business use - and what I do I cover in the self assessment form)

I was wondering how realistic this idea is. I'd probably use Freeagent to handle accounts etc. As I said I've been doing self assessment myself for over 5 years.

Any opinions/experience on this as an idea?

Thanks.

Rich