Reply to: Setting up as a Limited Company - worth doing?

[Craig@Clarity]

WOW!!! Thank you so much... now I know what I've been doing wrong...

I'm guessing if in a communications business you are making a turnover ok 100k the profit will be enough to justify to trade as a limited company...

You'll find all the accountants on here would never assume just because there is a turnover/sales of £100k that there will be sufficient profit to justify trading through a limited company. Whether you have a turnover/sales of £100k or £10k, the profit will must likely be less than this. Sometimes, it can be significantly less than this. Pub advice can be dangerous!

[Craig@Clarity]

OP mention on the first line of the first post that turnover last year was about 100k last year...

Actually, the OP mentioned the "business that turned over £100,000 last year" rather than about £100k but I'll let that one slide

If you're trying to pick me up on giving out the wrong free advice unrelated to the OP then you may have misunderstood what I was trying to ascertain for the rest of the forum. Turnover doesn't equal profit which I fully grant and assume the OP will appreciate since he's got experience.

Just in case you're unsure though, Turnover = Sales = Income. Profit = Sales minus Expenses. Under self employment (and under a limited company too), tax is calculated on the net profit of the business not the turnover. As I implied in my original post, having a £100k turnover and £90k expenses to give them £10k profit, it's probably not really worth going limited for tax efficiency.

Also, just in case you have a limited company and you're not aware, corporation tax is roughly calculated on sales/turnover minus expenses not sales/turnover minus expenses minus dividends. I've had a many instances where people have assumed the latter which ends up being a bit messy.

I still don't understand the problem with settlements legislation on this case. OP mention he has been helping on the company, paperwork, book keeping etc., plus OP doesn't have another job, why paying a small salary and small dividend would attract the settlements legislation?

Because......setting up a limited company where you have a non working (main fee earner) spouse or civil partner does open you up to settlements legislation. Saying it doesn't attract the settlements legislation is technically incorrect. It does attract the settlements legislation, however, there is an exemption that applies to the legislation so I did say there's nothing to be concerned about.

However, if you have a non working associate (not a spouse or civil partner) or a limited company was set up with just the main worker as the owner, does a bit or work and the OP joined at a later date, there could be settlements issues. Having a good understanding of the actual law, case studies and not just HMRC's guidance is important in this area. Setting up a limited company in the wrong order and not having consideration for other aspects could spell trouble later on. That's why people here will at least give others a heads up to think about this area. As I mentioned in my original post, if they did it in the suggested order, there shouldn't be any worries.

[northernladuk]

WOW!!! Thank you so much... now I know what I've been doing wrong...

I'm guessing if in a communications business you are making a turnover ok 100k the profit will be enough to justify to trade as a limited company...

If you started all your advice with the bit in bold everything will be much clear.

[CryingSheep]

Even the cheapest of accountants should be able to tell you that turnover and profit are not the same thing. It might be a good idea to put some more time in to it...

WOW!!! Thank you so much... now I know what I've been doing wrong...

I'm guessing if in a communications business you are making a turnover ok 100k the profit will be enough to justify to trade as a limited company...

[Lance]

Setting up as a Limited Company - worth doing?

Even the cheapest of accountants should be able to tell you that turnover and profit are not the same thing. It might be a good idea to put some more time in to it...

Yep. Turnover is vanity, profit is sanity.... or summat

[Alchemy Accountancy]

Just to add, that if you put the right time to learn how to do it yourself, it will probably put you ahead of half of the cheap accountants you can get!

Even the cheapest of accountants should be able to tell you that turnover and profit are not the same thing. It might be a good idea to put some more time in to it...

[CryingSheep]

What is the self employed profit in the business? This will be your first consideration in determining whether to go limited. If profit is circa £35k+ I'd probably say it's worth it. If profit is £10k, then not so much. Another consideration would be from a commercial point of view in terms of limiting liability, bigger clients wanting that association etc.

If you get into a civil partnership and then set up a limited company, both inject capital into the company, have full rights to income and capital then there's nothing to be concerned about paying a salary and dividends to you even if you're not the main worker. You may have an issue with settlements legislation if you don't do it in that sequence.

As some have said, you can do all this yourself if you invest the time, learn etc. You'll need to arm yourself with knowledge about filing deadlines, iXBRL, Corporation Tax (capital allowances, FYA AIA, if applicable), RTI, MTD (which I assume you know about already), IR35, expenses that are allowable and disallowable and the treatment in the accounts, benefits in kind and personal tax just to name a few. There's plenty of archived advice on here if you use the search.

OP mention on the first line of the first post that turnover last year was about 100k last year...

I still don't understand the problem with settlements legislation on this case. OP mention he has been helping on the company, paperwork, book keeping etc., plus OP doesn't have another job, why paying a small salary and small dividend would attract the settlements legislation?

Just to add, that if you put the right time to learn how to do it yourself, it will probably put you ahead of half of the cheap accountants you can get!

[Craig@Clarity]

What is the self employed profit in the business? This will be your first consideration in determining whether to go limited. If profit is circa £35k+ I'd probably say it's worth it. If profit is £10k, then not so much. Another consideration would be from a commercial point of view in terms of limiting liability, bigger clients wanting that association etc.

If you get into a civil partnership and then set up a limited company, both inject capital into the company, have full rights to income and capital then there's nothing to be concerned about paying a salary and dividends to you even if you're not the main worker. You may have an issue with settlements legislation if you don't do it in that sequence.

As some have said, you can do all this yourself if you invest the time, learn etc. You'll need to arm yourself with knowledge about filing deadlines, iXBRL, Corporation Tax (capital allowances, FYA AIA, if applicable), RTI, MTD (which I assume you know about already), IR35, expenses that are allowable and disallowable and the treatment in the accounts, benefits in kind and personal tax just to name a few. There's plenty of archived advice on here if you use the search.

[Davebhoy]

Thanks

Thanks for everyone's help

[Jess inniAccounts]

My partner has been self-employed for 8 or 9 years, she has a communications business that turned over £100,000 last year. She's set up as a sole trader at the moment and has recently registered for VAT.

I do her very basic accounts and tax return, but now her business is VAT registered I am setting her up on an accounts software package the is compliant with the new HMRC rules. I have experience of book keeping and some accounting and I'm studying for the ACCA accountancy qualifications, I've passed 2 of the 3 knowledge exams. Otherwise I am a house husband so I have no income at all.

We aren't married but will be entering into a civil partnership when the law changes at the end of the year.

I know that without knowing our full circumstances it might not be a straightforward question to ask but would it be worthwhile thinking about setting up a limited company for her business? Is it worth speaking to an accountant to wok out the best company structure and how best to pay me for my work for the company?

Thanks for any advice

It sounds like a limited company is the way to go for you guys, without knowing your full circumstances, it would be hard to say for definite of course.

The investment of an accountant for the first year will more than pay for itself in the long run knowledge and tax-wise. If you then wanted to go it alone, you can take that knowledge away with you into yr 2 etc.

[wattaj]

Why not from your perspective? Does the settlements legislation not apply to you?

The settlements legislation applies to *gifts* of shares. Setting up a completely new limited company would not have this problem... the partner would just throw in the £1 initial cost a of a share.

Have I misunderstood the point that you were making?

[CryingSheep]

Why not from your perspective? Does the settlements legislation not apply to you?

No mention of making him a director either?

You just guessing with that advice?

If, like he said, OP is helping managing the business, doing the books etc. why paying a small salary and some dividends would fall into the settlements legislation?

[northernladuk]

There is always risks involved in paying dividends to a partner, being married, civil partnership or nothing at all doesn't change much that risk from my perspective.
.

Why not from your perspective? Does the settlements legislation not apply to you?

No mention of making him a director either?

You just guessing with that advice?

[BR14]

There is always risks involved in paying dividends to a partner, being married, civil partnership or nothing at all doesn't change much that risk from my perspective.

Most important is that specially the OPs partner is aware of the risks involved and accept it or not.

About an accountant being a must, each person is different, and different business might have different complexities. Personally using FA and having a very simple business, I don't see the point of paying to someone to fill a few boxes and press a few buttons on FA for you, but like I said you need some free time and the will to read, explore and learn.

and in English?

[CryingSheep]

You sure the dividends are a good idea while they aren't married?

Accountant is a must for at least the first year and Free agent will make it a doddle.

There is always risks involved in paying dividends to a partner, being married, civil partnership or nothing at all doesn't change much that risk from my perspective.

Most important is that specially the OPs partner is aware of the risks involved and accept it or not.

About an accountant being a must, each person is different, and different business might have different complexities. Personally using FA and having a very simple business, I don't see the point of paying to someone to fill a few boxes and press a few buttons on FA for you, but like I said you need some free time and the will to read, explore and learn.