paying 18% tax via limited company?

Re: Putting your head above the parapet!

They should also include the fact that this is in no way illegal.

Had they wanted to make it so they would have drafted legislation other than IR35 which merely muddies the waters and means the difference between 20% and 40% tax rests largely on a few clauses written on a bit of paper and the luck of the draw on whether any particular company is investigated.

Putting your head above the parapet!

Just found this piece of Info from Hectors Inspection manual, I don't know how old this info is, but it may be relevant to the debate on low salary and dividends.


IM5322 - Accounts examination: use of service companies

When examining accounts, Inspectors should look out for attempts to avoid or delay payment of Schedule E tax and Class 1 NICs by means of arrangements under which directors or employees are remunerated for services provided typically by way of

a small wage or salary in order to meet the minimum wage requirements and pay the minimum amount of NICs necessary to qualify for benefits, and
large dividends.
The most common forms of this arrangement involve the use of a personal service company or a composite service company.

The individual gives to the personal service company the right to provide his/her services to a third party. The company may negotiate directly with a client or an agency may be included in the chain. The individual whose services are being provided may be a director or employee and shareholder of the company. In addition the individual's spouse is often a shareholder in order to minimise exposure to higher rates of tax.

Re: Just a thought

Not that I disagree with anybody, you are entitled to run your business any way you see fit. I was hopefully pointing out that we are all eventually going to get a visit from the IR. I want it to be later (so I'll be retired) rather than sooner.

I think that P.Timer Ltd who pays the director 16k and the secretary 14k (which is what the IR pay their staff) will be behind Bradley Ltd, Loos Ltd, etc. (who pay <5k and 2K to their respect employees) in the queue at the IR office.

This is not necessarily true but what I'm willing to gamble on.
I may be actually at the front of the IR queue but even then as I've already stumped up most of it, there shouldn't be that much extra they can squeeze out of me.

Like I said, it's all a gamble. If you're already gambling with minimum wage, etc. Why not go all out and do director loans like the director at "Joe Bloggs" ...

Disclaimer:
These are all scenarios and has no relevance to anybody living or dead.

Re: Just a thought

no, you get 100% of net earnings! (by definition)
net = 80% of gross
|I

Re: Just a thought

Shouldn't that be 80% of net earnings?

Re: Just a thought

If you pay yourself a minimum wage and don't pay high rate tax, it is possible to net out around 80% of gross contractor earnings.

Re: Just a thought

that's exactly right, Robot.

Minimum wage + rest in dividends is the optimum way to go

(IR enquiries notwithstanding but as is said above, they'll view any scheme as a cheat so you may as well cheat and hope to get through the net. Keep the cash safe somewhere in case you get caught. Chances of being caught are not that high actually)

Just a thought

“You could theoretically pay yourself no salary and take everything in dividends”

Doesn't make sense (if you want to take the maximum take home pay ) as you would lose the corporation tax saving on the £4,745 salary, now that they have change the rules re corporation tax / dividends.

Re:FUD

You could theoretically pay yourself no salary and take everything in dividends.
Same for your Mrs as secretary but don't you think you're waving a red flag to the IR if you pay < 10k as salary to any worker ?

If you are a contractor or any type of small business the government does not think you are a genuine business. You are only a genuine business to them if you have a factory and employ a unionised workforce.

What you are to them is an employee dodging the "proper" amount of tax.

You are also a soft target because it doesn't cost much to squeeze a few extra pounds of tax out of you because you feel intimidated by the overwhelming bureaucracy implemented by the legions of their faceless minions. The cut in government employees announced in the Budget will never happen - they'll just get re-designated, probably to the Revenue.

Trying to avoid confrontation with the taxman is therefore pointless - they will come looking for you anyway. You don't hide from a bully, you confront them.

Re:Tax

We've done this to death in the general board.
To recap, it boils down to how much you want to take the IR on.

You could theoretically pay yourself no salary and take everything in dividends.
Same for your Mrs as secretary but don't you think you're waving a red flag to the IR if you pay < 10k as salary to any worker ?

Then again you just have to look at how the IR are reinterpreting Section 660a and how some couple is now in court battling the IR over how the secretary was not paid "market rates". Their tax bill is somewhere in the 30k range.

At the end of the day you're going to be defending yourself against the IR and what is (or isn't) a reasonable salary. They'll probably throw in a IR35 investigation while you're there.

Better yet, pay no tax and buy a one way ticket to Rio

Re:Tax

OK - lets assume your companys first year is to 5th April so that it coincides with the personal tax year.

If you were to earn £60000 after expenses (travel/subsistence/accountants/indemnity/contract reviews etc etc).

You then take a salary of £4745 tax and NIC free and pay the wife £2000 for "Book-keeping" that leaves you with taxable profits of £53255. Corporation tax at 19% is £10118 or 16.8% of net profit of £60000.

You can then take out up to £28000 in dividends without paying any more tax as an individual. If your wife is another shareholder then make that £56000 split between you.

Re: Re:Tax

High? so u mean I should be paying even less tax??

I am currently with a limited company, and am paying 33%+!!

Re:Tax

20% seems kind of high to me but it depends a lot on what you need to take out to live on.

An accountant has worked out a plan for my limited company (if i form one) where I will be paying around 18-20% tax a year...is that too good to be true???