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Is my UK LTD company tax structure still legal?

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    Is my UK LTD company tax structure still legal?

    Hi all. I originally set up my company in 2014, and at the time was advised that I could have a company with no employees, take no wages and only pay a dividend to shareholders.

    I was told that the reason that I could do this is that I am already a full time employee with a good income (I'm a high rate tax payer), and that I am effectively just running the company as a hobby in my spare time.

    In fact my reason for making this a LTD company wasn't anything to do with tax, but, it's because I wanted to separate my person assets from the company so that if someone tries to sue the company for whatever reason (like patent infringements for example) then at least they will never get my house.

    The company has had sales of £170,000 over that eight years, and after paying corporation tax the dividends are about £6000 per year split between three people, all of whom register their income on tax returns. Probably our margins aren't really high enough, however the effort of buying parts in, assembling and shipping out isn't great at all, most of the development was done in the early years.

    The company is a cottage industry manufacturer and sells an electronic box directly to end customers, and we have over a thousand, so this is not an IT consultancy company or anything like that.

    One motive for me asking is that I am thinking of starting another small company on very similar lines (though a very different product) and I am wondering if I can copy/paste the concept. My logic is that neither company needs to actually pay me a wage until such time as I stop working for my normal employer. The other option is to just do this second product within the same existing company. There are pro and cons to that. Is there any rule about running multiple companies as a hobby?

    I don't have a tax adviser or even an accountant and have been doing my own accounts and submitted micro entity accounts to Companies House / HMRC every year myself. I have a record of every single transaction going in/out of the company and can prove that it all adds up if I ever needed to, so I don't see any of that being a problem.

    I just want to check that the original premise of no employees, no wages, it's just a hobby, I do a tax return, is still valid, especially before I do it again. Thanks.

    #2
    Hi, and welcome to the forum.

    Originally posted by dieselnutjob View Post
    I originally set up my company in 2014, and at the time was advised that I could have a company with no employees, take no wages and only pay a dividend to shareholders.
    Yes, that's absolutely fine.

    I was told that the reason that I could do this is that I am already a full time employee with a good income (I'm a high rate tax payer), and that I am effectively just running the company as a hobby in my spare time.
    That's not correct. I.e. lots of people here are running a company with zero employees, but that's not reliant on having a full-time job somewhere else. I'd also be careful about thinking about this as a hobby: being a director has various legal responsibilities, and you need to take them seriously.

    One motive for me asking is that I am thinking of starting another small company on very similar lines (though a very different product) and I am wondering if I can copy/paste the concept. My logic is that neither company needs to actually pay me a wage until such time as I stop working for my normal employer. The other option is to just do this second product within the same existing company. There are pro and cons to that. Is there any rule about running multiple companies as a hobby?
    Presumably you have a SIC (Standard Industrial Classification) code for your existing company. If you created a second company, would that have the same SIC code or a different code?

    It's fine to be a director of 2 companies. (I believe the maximum is 20, but as long as you don't get carried away you shouldn't hit that limit.)

    Comment


      #3
      Originally posted by hobnob View Post

      It's fine to be a director of 2 companies. (I believe the maximum is 20, but as long as you don't get carried away you shouldn't hit that limit.)
      When credit checking the agency I'm working through I looked into the group that is the designated PSC. One of their directors has 64 appointments.

      Comment


        #4
        Originally posted by ladymuck View Post
        When credit checking the agency I'm working through I looked into the group that is the designated PSC. One of their directors has 64 appointments.
        Crikey! Did that include any dormant companies, or were they all active?

        Doing a bit more digging online, I think the limit of 20 applies to India (Companies Act 2013) rather than the UK (Companies Act 2006). So, in theory you can be a director of as many companies as you like, although there will come a point where you're no longer able to devote a meaningful amount of time to each one.

        Comment


          #5
          Originally posted by hobnob View Post
          Hi, and welcome to the forum.



          Yes, that's absolutely fine.



          That's not correct. I.e. lots of people here are running a company with zero employees, but that's not reliant on having a full-time job somewhere else. I'd also be careful about thinking about this as a hobby: being a director has various legal responsibilities, and you need to take them seriously.



          Presumably you have a SIC (Standard Industrial Classification) code for your existing company. If you created a second company, would that have the same SIC code or a different code?

          It's fine to be a director of 2 companies. (I believe the maximum is 20, but as long as you don't get carried away you shouldn't hit that limit.)
          Ok thanks for the correction concerning my full time job.

          yes the company has a a SIC and the new product would not fit within the definition of the SIC. I assume that these can be changed at annual declaration time. The share holders of the original company are share holders because their contributed something to the company at the beginning, and a share of the dividends is/was a fair reward for doing so (one in particular gave expertise without which I could not have developed the product). However that isn't true of the new product which so far has been 100% my own effort. Also the original company is not VAT registered, but I think that due to the more international basis of the new product it will need to be VAT registered.

          Comment


            #6
            Originally posted by hobnob View Post

            Crikey! Did that include any dormant companies, or were they all active?

            Doing a bit more digging online, I think the limit of 20 applies to India (Companies Act 2013) rather than the UK (Companies Act 2006). So, in theory you can be a director of as many companies as you like, although there will come a point where you're no longer able to devote a meaningful amount of time to each one.
            Some active, some inactive but the vast majority were active. It was quite an eye opener

            Comment


              #7
              Yes, absolutely fine. Just ensure that you're fully aware of, and compliant with, all your statutory responsibilities.

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