Should I trade as a Limited Company, umbrella or composite

[Bradley]

Failure

Few unanswered queries in the thread, so here goes:

1. Bradley - yes, assumed wage of £4800 and dividends to the sole shareholder. Obviously if the S660 result comes out on our side you could split the shares with a non working spouse and get an even better return, but at the time of writing this is so uncertain that I didn't want to build this into the projections;

2. DaveB - in those take home figures I assumed expenses at 15% of the contract value, so on the example of £50,000 a year you have expenses of £7500 pa. Multiply this over the three years gives you £22500, added to the £107,000 gives £129500 which is actually around 86% of the contract value;

3. Bradley - Form 42. See what you mean. It could well be that the Revenue are sitting on these and formulating a strategy for taking down the composites, but I think it fair to say that they have a very limited shelf life the way things are going.

Simon - I can't duplicate your figures at all. Is there a link to the workings on the SJD site?

[funkyd]

Also, from experience, I can say that not once in the last 15 years have the Revenue ever even raised a question about a low salary.

Further, again from experience, there is no correlation between a low salary and the likelihood of an investigation.

Are you not missing the point that a low salary equates to low NI contributions which is something that the Revenue would be interested in? Insufficient NI contributions can cause all sorts of problems and imo consider the extra payment insignificant relative to my income.

[simondolan]

Link

Bradley - I wouldn't want to give away our secrets would I!!

Would of course be happy to discuss with you once you become a client

In all seriousness it is a fairly simple piece of tax planning which all decent accountants should know about - really nothing complicated and something which is given prior approval by the Revenue.

[simondolan]

Ni

Are you not missing the point that a low salary equates to low NI contributions which is something that the Revenue would be interested in? Insufficient NI contributions can cause all sorts of problems and imo consider the extra payment insignificant relative to my income.

Of course, it is something the Revenue are interested in - we wouldn't have IR35 if they weren't, but the fact is that (aside of IR35) there is nothing they can do about it at present.

The only problem insufficient NI contributions can pose is a reduced State Pension. Maybe a consideration for some, but for your average 30 year old not something they are likely to be too bothered about.

[ASB]

Of course, it is something the Revenue are interested in - we wouldn't have IR35 if they weren't, but the fact is that (aside of IR35) there is nothing they can do about it at present.

The only problem insufficient NI contributions can pose is a reduced State Pension. Maybe a consideration for some, but for your average 30 year old not something they are likely to be too bothered about.

Simon,

I thought it was the case that if you paid youself between the lower earning limit and the primary threhold the the NI payable was nil but you still got a years pension credit. If this is correct (and I'm not sure) then one will still get the full basic state pension.

If I am incorrect this could be a good time for me to get a forecast and pay some class 3 contributions

[NewBoy]

Hi Simon

I have been playing with the numbers based on £75k per annum and I'm obviously some way off with my numbers...am I missing something very obvious? Workings as follows for one year only:

Earnings: £75k

Salary: £4.8k

Profit: £70.2k (£75k - £4.8k)

19% Small Business Tax: £13.3k

Gross Dividend: £56.9k (Profit minus small business tax)

Taxable Dividend: £23.6k (Gross Dividend minus lower tax threshold of £38.1k)

22.5% Dividend Tax: £5.3k

Net Dividend: £51.6k (Gross Dividend minus Dividend Tax)

Net Earnings: £56.5k per annum (Net Dividend plus + Salary)


Where have I gone wrong? The only thing I can think of is that I've done the Dividend wrong, my understanding is as follows:

First £4,800 (i.e. Salary) is a completely tax free. The next £33,300 if paid as a dividend is subject to 10% tax liability but then the 10% tax credit balances that out, so again, tax free in reality. Anything above that amount (i.e. £38.1k) is subject to a 32.5% tax liability but the 10% tax credit reduces that down to 22.5%...Have I got this right?

Can't wait for the 100 posts that are about to blast the Newboy for missing something an 8 year old would spot!!

[simondolan]

Figures

Hi,

Yes, you are missing something fundamental, but not something you would know about so don't feel too bad about it! (Although of course your accountant should know about it...)

Drop me a mail and I'll go through it with you.

[ASB]

Can't wait for the 100 posts that are about to blast the Newboy for missing something an 8 year old would spot!!

NewBoy,

I have no idea at all what Simons method will be (better than mine I imagine) but consider tihs:-

After 3 years you get taper relief of 75% on the value of shares sold. If there are two of you then given the approx 9k CGT allowance this means the company can have retained earnings of about 70k before any CGT becomes payable.

So if you rework your calculation retaining about 23k PA you might get a better result. But I can't be bothered to do it.

The problem with this might be that the IR could be unhappy about you setting up a CO and the winding it up every 3 years with ESC C16. [The concession that lets you take distributions as capital not income. I imagine they could not complain if you went through formal liquidation and that wouldn't be too expensive though]

[Bradley]

Tapered End

NewBoy,

I have no idea at all what Simons method will be (better than mine I imagine) but consider tihs:-

After 3 years you get taper relief of 75% on the value of shares sold. If there are two of you then given the approx 9k CGT allowance this means the company can have retained earnings of about 70k before any CGT becomes payable.

So if you rework your calculation retaining about 23k PA you might get a better result. But I can't be bothered to do it.

The problem with this might be that the IR could be unhappy about you setting up a CO and the winding it up every 3 years with ESC C16. [The concession that lets you take distributions as capital not income. I imagine they could not complain if you went through formal liquidation and that wouldn't be too expensive though]

I certainly wouldn't rely on GB leaving taper relief or the concessionary treatment as is in the current climate. You could end up leaving money in the company on which you end up paying far more in tax in the future.

Take the money out as you earn it!

[simondolan]

I certainly wouldn't rely on GB leaving taper relief or the concessionary treatment as is in the current climate. You could end up leaving money in the company on which you end up paying far more in tax in the future.

Take the money out as you earn it!

That is terrible advice. I agree the concession may not last for ever, but that is no reason to take the cash out as you go. If nothing else, by leaving cash in the Company you defer the potantial higher rate tax payable on the dividends.