newbie starting out with questions

[northernladuk]

That's quite strongly worded and is definitely the more conservative approach. I do accept that it's a bit of a grey area and it's probably best to ask an accountant though they don't even seem to know or agree on a hard and fast rule.

Very true but I feel quite strongly about it. It seems pretty black and white in my mind. If you didn't have the cap on divis what would we all do? We would all just divi it to ourselves obviously. Because there is a cap and we don't want to pay extra tax we give some to our wives who gives it straight to us. Why would you do that if it wasn't to evade the tax on the extra? I can't see how HMRC would see it any other way.

Putting into a joint account is virtually impossible for HMRC to argue as they would have to go through every transaction to prove it and they just cannot do that so have to let it go. One big lump to her to you is easily traceable and demostrates the model in the first paragraph.

We fly so close to the line using these techinques such a subtle difference is very important. Similar, I believe, goes for the 70/30 split over the 50/50. Small, almost insignificant but those are the points that make a difference when investigated.

[Wanderer]

I don't believe this is true. Giving your wife divi money for her to transfer straight back to you is blatant evasion. If you wanted the money you should have given it to yourself and paid tax on it. Her putting it in to a joint account I believe you be acceptable as she has access to it and you cannot prove who is is spending it. Symentics I know but I believe a very important note.

That's quite strongly worded and is definitely the more conservative approach. I do accept that it's a bit of a grey area and it's probably best to ask an accountant though they don't even seem to know or agree on a hard and fast rule.

You are allowed around 33K divis (depending on some other numbers) your wife, if not working, won't be far off and the same for your mother. Assuming neither are workign you are looking at around 90k a year in divis... and this is from PROFIT only. Will you really be making that much

Good point. With a standard husband and wife income split you are good for about £450/day or £90k per year without hitting the higher rate tax. It may not be worth messing about with extra shareholders besides your wife unless it was someone that you supported financially. Just retain the balance in the company and pay it out during a lean year when you dip below the higher rate threshold.

Also on the point of paying your wife 7k a year. She must EARN this to be able to claim it.

A fair point. It's interesting to note that in the Arctic Systems case a salary of ~£3,000 was not questioned....

[knight007]

Some very good advice. Thanks all.

[PinkPoshRat]

Also on the point of paying your wife 7k a year. She must EARN this to be able to claim it. You cannot just give it her as a defacto standard as everyone seems to think. Bookkeeping is not enough to cover it. You pay an accountant £1200 a year so 7k for bookkeeping is obviously ridiculous. It is up to you if you want to kid yourself she earns it but you will have to demonstrate in black and white she does when you get investigated. Bookkeeping and 'research' will not cut it in my book. You have to be realistic about this.

Sound opinion/advice there.

[northernladuk]

You can do this as a tax avoidance measure by giving your wife dividends and she can give the money straight back to you or put it in a joint account, no problem. With your mother it's different.

I don't believe this is true. Giving your wife divi money for her to transfer straight back to you is blatant evasion. If you wanted the money you should have given it to yourself and paid tax on it. Her putting it in to a joint account I believe you be acceptable as she has access to it and you cannot prove who is is spending it. Symentics I know but I believe a very important note.

Question about making your you and your wife shareholders. Are you really going to earn enough to need to bother to do this? You are allowed around 33K divis (depending on some other numbers) your wife, if not working, won't be far off and the same for your mother. Assuming neither are workign you are looking at around 90k a year in divis... and this is from PROFIT only. Will you really be making that much bearing in mind your first and most important priority is building solid warchest up that will see you through tight months on the bench.

Also on the point of paying your wife 7k a year. She must EARN this to be able to claim it. You cannot just give it her as a defacto standard as everyone seems to think. Bookkeeping is not enough to cover it. You pay an accountant £1200 a year so 7k for bookkeeping is obviously ridiculous. It is up to you if you want to kid yourself she earns it but you will have to demonstrate in black and white she does when you get investigated. Bookkeeping and 'research' will not cut it in my book. You have to be realistic about this.

[JamJarST]

Q1. Engage an accountant straight away - they will discuss your requirements in detail and for the company in the right way. You have a good grip of the basics and now you need some detailed advice based on your actual and projected incomes for the next couple of years. Unless you want to tell us your incomes past, present and future, we can't really advise you and even then you are going to want a good professional to do the calculations rather than us! Do a search for accountant on this forum and you will find the names of the people who are helpful and or support the forum by advertising here and approach them.

A good accountant will do this for a fee and you won't have to engage their services until you start trading. In fact you won't have to engage them as your accountant if you don't want to.

[Pondlife]

I am in a permenant job at the moment.
My plans are to set up my limited company in advance of finding my first contract.
I also want to get the Flat Rate VAT Schema registration sorted before contracting.
Being a newbie, I have some questions:

Q1:I am going to need an accountant. However do I need to appoint an accountant as soon as my company formation is complete? or can it wait until I start my contract?
I'm planning to do the company formation without an accountant. I'm hoping its not rocket science.
- You can wait
Q2:My wife is currently unemployed and looking after our newborn. She is planning to find a job around June 2012. In the meantime I was planning on making my wife a shareholder in my company or should I make her the secretary and pay her a small salary? Or can I do BOTH?
- She can be secretary and shareholder. She does not have to be paid for being a secretary but you might want to pay her up to NI threshold.

Q3: Would there be any implications if my wife started working for someone else in 2012 and continued to receive dividends from my company? would she have to do a self assessment each year?
- No unless she went over the higher rate threshold and tax was owed.

Q4:My mother is also not working. Is it possible that I can make her a shareholder too? Is having more than 2 shareholders in the company better when splitting dividends.
- Is it your intention that your mother keeps this money or gives it back to you? I think the latter is classed as fraud. Don't even bother.

Q5:Is it absolutely neccessary to get PI insurance when contracting? Do agents normally ask for this?
- No, depends on contract reqmts

Q6: Is their any advantage in forming the company in joint names? (myself and my wife)
- Not as far as I can see

Q7o I need to get employers insurance?
- Legally I think so but this may have changed. You can usually get it cheap when you get your PI Ins.

Q8uring the months where I am in between contracts, do I still need to pay myself a salary?
- It's your company so it's up to you. Remember, no salary means no NI stamp

Q9:Is the salary fixed? or can I change it during the tax year?
- Up to you but whoever is doing your payroll will prob get the hump if you keep doing this.

Q10:Is there any advantage of using a company debit card for expenses rather than out of your own pocket and reclaiming it from your ltd company?
- Pros, easier audit trail if the payments are direct. cons, Business CC/Debit cards don't always offer the same protection as consumer cards AFAIK

Q11: My current employer is interested in keeping me on a contract basis when my permenant employment ends. This immediately screams out IR35 to me!
Should I be worried?
- Yes
Or can I structure the contract in such a way that it lies outside of IR35. Apart from the obvious substitution clause and mutuality of obligation
I was thinking: - have a fixed length contract for a specific project.
- work from home 3 days a week and 2 days in the office.
- have a short notice period such as 24 hours (both sides)
- WFH makes no diff. What you're explaining is pretty much what IR35 was set up to catch. If you are doing the same role as before under similar conditions then you're caught.... regardless of any clever contract wording. These days it's the working conditions that they look at as well.

Q12: I understand that if registering for flat rate VAT you cannot reclaim VAT on expenses. However I believe you can still claim back the VAT on purchases of over £2000. Can someone
confirm my understanding is correct?
- If you are buying one item (a PC, monitor, keybd, mouse is one item ) then yes

The info given above is worth exactly what you've paid for it.

[Wanderer]

Q1. Engage an accountant straight away - they will discuss your requirements in detail and for the company in the right way. You have a good grip of the basics and now you need some detailed advice based on your actual and projected incomes for the next couple of years. Unless you want to tell us your incomes past, present and future, we can't really advise you and even then you are going to want a good professional to do the calculations rather than us! Do a search for accountant on this forum and you will find the names of the people who are helpful and or support the forum by advertising here and approach them.

Q2. You can do both but you need the advice of an accountant to figure out the sums and determine what shares to allocate. It's best if these shares are allocated at company formation time. It won't cost much more to get an accountant to form the company for you and they can deal with everything else at the same time (bank account, paye, VAT FRS etc)

Q3. Yes, but the accountant can handle the self assessment, it's not too onerous.

Q4. ALL shareholders in your company get a dividend according to the number of shares they hold. You can do this as a tax avoidance measure by giving your wife dividends and she can give the money straight back to you or put it in a joint account, no problem. With your mother it's different. She can be a shareholder but the money she gets from dividends is hers to keep. If she gives it to you then it needs to be treated as income and you will pay tax on it. HMRC will certainly question this arrangement if you get investigated so you need to keep it clean. If you support your mother financially then this may be a way to pay her money and avoid tax. Paying her money that she pays straight back to you won't work. Paying her money that she uses to buy a new TV, a car that you get to use all the time and a nice holiday together is also wrong and you would get in a lot of trouble though it may be difficult to prove. It may also complicate your mother's tax affairs, she may need to do a self assessment though your accountant can sort this out for you.

Q5. You don't need ANY insurance to run a company unless you have employees other than yourself. Sometimes clients insist on having it so you have to get it. It may be prudent to take out PI insurance anyway.

Q6. Yes, if you die then your wife still has control of the company as a director. If you split up then she also still has control of the company. Neither of these are a nice thing to consider, I'm just stating the bare facts.

Q7. You don't need Employer's Insurance unless you have employees other than yourself. Some agents/clients don't understand this and they get a bit anal about it by insisting you have this useless insurance.

Q8. Generally people take a £7k salary over the whole year so they don't pay tax or NI on it.

Q9. As company director you can do whatever you like. Generally people take a fixed salary (or else it messes up the accounting) and take dividends according to how much profit remains in the company.

Q10. I find it's easier to keep track of if I pay for company expenses using the company card. It also gives HMRC no reason to look at your personal bank account.

Q11. You are right to be concerned but you are on the right track, seek professional advice from one of the IR35 contract reviewers or get a contract template from the PCG. Also understand that the contract must reflect the actual working conditions, it can't just be a paper exercise. Make sure your employer knows that you are going into business and that a lot will change, for example you may subcontract some of the work out to someone else to do. As for WFH/in the office, I would have it worded quite loosely so that YOU decide where you will work and not be tied to a fixed number of days here or there (IR35irection and Control). It may be worthwhile getting some of this agreed in writing separate to the contract to strengthen your case and make sure there are no misunderstandings.

Q12. Yes your understanding is correct. See VAT and the Flat Rate VAT scheme for IT Contractors :: Contractor UK

[knight007]

I am in a permenant job at the moment.
My plans are to set up my limited company in advance of finding my first contract.
I also want to get the Flat Rate VAT Schema registration sorted before contracting.
Being a newbie, I have some questions:

Q1:I am going to need an accountant. However do I need to appoint an accountant as soon as my company formation is complete? or can it wait until I start my contract?
I'm planning to do the company formation without an accountant. I'm hoping its not rocket science.

Q2:My wife is currently unemployed and looking after our newborn. She is planning to find a job around June 2012. In the meantime I was planning on making my wife a shareholder in my company or should I make her the secretary and pay her a small salary? Or can I do BOTH?

Q3: Would there be any implications if my wife started working for someone else in 2012 and continued to receive dividends from my company? would she have to do a self assessment each year?

Q4:My mother is also not working. Is it possible that I can make her a shareholder too? Is having more than 2 shareholders in the company better when splitting dividends.

Q5:Is it absolutely neccessary to get PI insurance when contracting? Do agents normally ask for this?

Q6: Is their any advantage in forming the company in joint names? (myself and my wife)

Q7o I need to get employers insurance?

Q8uring the months where I am in between contracts, do I still need to pay myself a salary?

Q9:Is the salary fixed? or can I change it during the tax year?

Q10:Is there any advantage of using a company debit card for expenses rather than out of your own pocket and reclaiming it from your ltd company?

Q11: My current employer is interested in keeping me on a contract basis when my permenant employment ends. This immediately screams out IR35 to me!
Should I be worried? Or can I structure the contract in such a way that it lies outside of IR35. Apart from the obvious substitution clause and mutuality of obligation
I was thinking: - have a fixed length contract for a specific project.
- work from home 3 days a week and 2 days in the office.
- have a short notice period such as 24 hours (both sides)

Q12: I understand that if registering for flat rate VAT you cannot reclaim VAT on expenses. However I believe you can still claim back the VAT on purchases of over £2000. Can someone
confirm my understanding is correct?