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Starting a Ltd Company

DonDaddyDDonDaddyD Posts: 12,689
edited April 2013 in Commuting chat
I'm thinking of starting a private limited company - all above board. Essentially, I will be contracting and I need a ltd so that I am paid through my company.

Thing is I have no idea about starting a ltd company, what is needed, how much it costs, ongoing costs or how/what tax needs to be paid. So I figured I would ask the community!

Specifically, I need to know:

What tax needs to be paid how and when? I'm assuming: Income Tax, National Insurance and Student Loan.

What, if any, are the additional costs/payments that need to be paid - (assume my ltd company is being paid £35k per annum?

What else is needed?

Any other bits of wisdom would be greatly appreciated.

Thanks in advance.
Food Chain number = 4

A true scalp is not only overtaking someone but leaving them stopped at a set of lights. As you, who have clearly beaten the lights, pummels nothing but the open air ahead. ~ 'DondaddyD'. Player of the Unspoken Game
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  • doogeedoogee Posts: 82
    Have a look at the sites linked below. I was recently looking in to doing this as well with a possible new job.

    If you go fully limited then tax is paid as corporation tax by your company at 20%. You will be paid a nominal salary from your weekly earnings by your 'company' (depends on how you set it up) at the end of each month you can withdraw dividends as a share holder. There are thresholds for this and you will be advised what this is as above it you will start paying tax on the dividend. The money above this threshold can be left in the company or used for a pension etc.

    To be honest your best bet is to call around a few compnies that deal with this and discuss your requirements. I've put a couple of links to the ones I was recommended/spoke with.

    http://www.danbro.co.uk/

    http://www.brookson.co.uk/

    Hope the above helps.
  • davieseedaviesee Posts: 6,473
    Two rules for someone not knowing what they are doing in business.

    1. Get a reputable accountant. They can set it all up for you.
    2. See rule one.

    You may be able to do it yourself after the initial few years but you will spend more than it is worth doing the research to get it right first time on your own.
    None of the above should be taken seriously, and certainly not personally.
  • I hate when people do this, but here's a link to a website/forum which is very specific to your question.

    http://www.startups.co.uk/
  • DonDaddyDDonDaddyD Posts: 12,689
    doogee wrote:
    Have a look at the sites linked below. I was recently looking in to doing this as well with a possible new job.

    If you go fully limited then tax is paid as corporation tax by your company at 20%. You will be paid a nominal salary from your weekly earnings by your 'company' (depends on how you set it up) at the end of each month you can withdraw dividends as a share holder. There are thresholds for this and you will be advised what this is as above it you will start paying tax on the dividend. The money above this threshold can be left in the company or used for a pension etc.

    To be honest your best bet is to call around a few compnies that deal with this and discuss your requirements. I've put a couple of links to the ones I was recommended/spoke with.

    http://www.danbro.co.uk/

    http://www.brookson.co.uk/

    Hope the above helps.
    Thanks.
    Food Chain number = 4

    A true scalp is not only overtaking someone but leaving them stopped at a set of lights. As you, who have clearly beaten the lights, pummels nothing but the open air ahead. ~ 'DondaddyD'. Player of the Unspoken Game
  • DonDaddyDDonDaddyD Posts: 12,689
    daviesee wrote:
    Two rules for someone not knowing what they are doing in business.

    1. Get a reputable accountant. They can set it all up for you.
    2. See rule one.

    You may be able to do it yourself after the initial few years but you will spend more than it is worth doing the research to get it right first time on your own.
    Is it really that hard?

    I honestly thought it would be:

    My company gets paid weekly:

    I pay myself a salary (bills primarily).

    I leave the rest in the company account to pay the taxes. - Knowing what tax and how much is the sticking point, but I thought it would be Corporation/Income Tax 20%, National Insurance (do I need to pay this for myself?) and Student Loan.

    What's left over is mine in the form of stake holder dividends at the end of the financial year? Right?
    Food Chain number = 4

    A true scalp is not only overtaking someone but leaving them stopped at a set of lights. As you, who have clearly beaten the lights, pummels nothing but the open air ahead. ~ 'DondaddyD'. Player of the Unspoken Game
  • wgwarburtonwgwarburton Posts: 1,863
    DonDaddyD wrote:
    daviesee wrote:
    Two rules for someone not knowing what they are doing in business.

    1. Get a reputable accountant. They can set it all up for you.
    2. See rule one.

    You may be able to do it yourself after the initial few years but you will spend more than it is worth doing the research to get it right first time on your own.
    Is it really that hard?

    I honestly thought it would be:

    My company gets paid weekly:

    I pay myself a salary (bills primarily).

    I leave the rest in the company account to pay the taxes. - Knowing what tax and how much is the sticking point, but I thought it would be Corporation/Income Tax 20%, National Insurance (do I need to pay this for myself?) and Student Loan.

    What's left over is mine in the form of stake holder dividends at the end of the financial year? Right?

    This is a tax issue and you are asking "Is it really that hard?"... Of course it's hard!!

    Allowable expenses? Ratio of salary to dividends? Company cars and other company expenditure? Companies house returns, tax returns, whether VAT registered or not?

    If you get it wrong you can potentailly be hit by a tax/VAT investigation, which will probably be more hassle and expense than paying a lot more tax than you need to (which is what will happen if you err on the side of caution).

    Have a look at the Professional Contractors Group: http://www.pcg.org.uk/

    ...and yes, Rule 1 is get a good accountant. If they don't save you money then they are not a good accountant.

    Try and find a specialist. It's a complex and dynamic field.

    Welcome to the world of freelancing: I had a permanent job once- it was in 1986, I think, for about ten months...

    Cheers,
    W.
    [edit]: PS should have said- you need to pay both employers & employees NI, and will need employers liability insurance and professional Indemnity Insurance, at least.
  • TheStoneTheStone Posts: 2,291
    DonDaddyD wrote:
    assume my ltd company is being paid £35k per annum?

    Have a look at an umbrella company.
    For that kind of turnover, it's probably not worth the extra effort of having a limited company.
    exercise.png
  • kelsenkelsen Posts: 2,003
    Speak to Natwest going by the ad which has mysteriously popped up at the top of the page. Up to £1000 of free benefits for Start-ups apparently! :lol:
  • TheStone wrote:
    DonDaddyD wrote:
    assume my ltd company is being paid £35k per annum?

    Have a look at an umbrella company.

    Like this one? http://gizmodo.com/5856159/uberhood-bik ... visibility

    Can't see it helping much.
  • SketchleySketchley Posts: 4,235
    What is your motivation for wanting to do this? Tax avoidence?

    If you would effectively be employed by your client if you were paid direct (i.e. the only difference is method of payment) then there is little benefit in setting up a limited company. As IR35 is there to ensure you cannot avoid tax this way (http://en.wikipedia.org/wiki/IR35). In fact you might even pay more tax as you will need to pay employers and employee national insurance, however you would tend to negoiate this with the client so you get the equivalent of the employee NI added to you monthly fee as they won't be paying it like they would if your were on PAYE. Similarly look at employers pension contributions and other benefit such as health car, liability insurance, death in service, sick pay, holiday pay, employement protection which will all now be at your cost and should be reflected in the monthly charge.

    Now once you have taken all this into account you might be able to get some tax benefit.

    Does you wife work? (nudge nudge) if not you could pay her a fee of "Secretarial Services" (nudge-nudge) from the company which has two benefit the first you can you her tax free allowence to stop you paying 40% (assuming you are higher rate and if you are not don't even think about a ltd company) on approx £9.4 k a year (2013/2014 rates), and then her basic rate allowence to pay 20% on the next £32k.

    Do you have no claimable (from your client) work related expenses, such as travel, computers, offices, etc etc as these can be claimed before tax.

    Do you work for multiple clients, do you employee other staff and do you have substitution clauses in your contract (in other words can you swap yourself from someone else with same skill set at the client). In which case IR35 may not apply.

    My advice, is that if you are working as an employee get paid as one using and sort the tax via PAYE.
    --
    Chris

    Genesis Equilibrium - FCN 3/4/5
  • Mr_RibbleMr_Ribble Posts: 1,055
    +1 to what Sketchley said.

    People in the banking industry (mainly IT contractors) have been doing this for years, and the government has begun to clamp down on it with the introduction of IR35.

    Speak to companies that provide umbrella services and they will tell you whether its worth while. At 35K per annum though, I doubt it. There is a fine line between avoidance and evasion, and the latter is essentially stealing from the country and your pass to spending time at her Majesty's pleasure.
  • DonDaddyDDonDaddyD Posts: 12,689
    The contract is for three months, assuming I perform well then I am to be moved onto a fixed term contract payed via PAYE.

    The sticking point is that in order to secure the contract I will have to set up a Ltd or use an Umbrella. The pay won't be at the higher rate of tax - in fact I don't think they are offering enough for a contractor, but I want the job. I need to go back to the drawing board on this one and think.
    Food Chain number = 4

    A true scalp is not only overtaking someone but leaving them stopped at a set of lights. As you, who have clearly beaten the lights, pummels nothing but the open air ahead. ~ 'DondaddyD'. Player of the Unspoken Game
  • The FugglerThe Fuggler Posts: 1,228
    I did exactly this so that I could take a contract directly from a major PLC rather than having to go through a third party, who would have taken a cut.

    Setting it up is easy enough, but from an on-going financial point of view, getting a good accountant is well worth it.
    FCN 3 / 4
  • doogeedoogee Posts: 82
    DonDaddyD wrote:
    The contract is for three months, assuming I perform well then I am to be moved onto a fixed term contract payed via PAYE.

    The sticking point is that in order to secure the contract I will have to set up a Ltd or use an Umbrella. The pay won't be at the higher rate of tax - in fact I don't think they are offering enough for a contractor, but I want the job. I need to go back to the drawing board on this one and think.

    I was told that setting up Ltd for anything less than 6 months wasn't worth while for most accounting firms to be interested as the costs of wrapping the company at the end of the contract is prohibitive due to the short term of the contract. If it's only 3 months and you have to go contract for the position then an umbrella company is a better bet. They deal with all tax/NI and just pay you via PAYE. It's explained better by others but I'd just phone around and ask questions.
  • DonDaddyDDonDaddyD Posts: 12,689
    Sketchley wrote:
    What is your motivation for wanting to do this? Tax avoidence?
    Mr_Ribble wrote:
    +1 to what Sketchley said.

    People in the banking industry (mainly IT contractors) have been doing this for years, and the government has begun to clamp down on it with the introduction of IR35.

    Speak to companies that provide umbrella services and they will tell you whether its worth while. At 35K per annum though, I doubt it. There is a fine line between avoidance and evasion, and the latter is essentially stealing from the country and your pass to spending time at her Majesty's pleasure.
    I should clarify, I don't want to avoid tax. I want the job.

    What I want to know is what tax is to be paid.

    The Ltd Company would have me as the Director and Ms DDD as the Company Secretary.

    From the posts it seems:

    I would be paying 20% corporation tax.
    National Insurance for me as I would be the person working. (Would I need to pay Mrs DDD)

    I could go with an umbrella but if I do that I still want to know where my money is going so if anyone could clearly list what tax/insurance/costs are paid by a Ltd Company and at what percentage (assume lower rate) that would be great point in the right direction.

    And don't worry, I'm on the case for an accountant.
    Food Chain number = 4

    A true scalp is not only overtaking someone but leaving them stopped at a set of lights. As you, who have clearly beaten the lights, pummels nothing but the open air ahead. ~ 'DondaddyD'. Player of the Unspoken Game
  • DonDaddyDDonDaddyD Posts: 12,689
    doogee wrote:
    DonDaddyD wrote:
    The contract is for three months, assuming I perform well then I am to be moved onto a fixed term contract payed via PAYE.

    The sticking point is that in order to secure the contract I will have to set up a Ltd or use an Umbrella. The pay won't be at the higher rate of tax - in fact I don't think they are offering enough for a contractor, but I want the job. I need to go back to the drawing board on this one and think.

    I was told that setting up Ltd for anything less than 6 months wasn't worth while for most accounting firms to be interested as the costs of wrapping the company at the end of the contract is prohibitive due to the short term of the contract. If it's only 3 months and you have to go contract for the position then an umbrella company is a better bet. They deal with all tax/NI and just pay you via PAYE. It's explained better by others but I'd just phone around and ask questions.
    This is the conclusion I'm coming to as well to be honest.
    Food Chain number = 4

    A true scalp is not only overtaking someone but leaving them stopped at a set of lights. As you, who have clearly beaten the lights, pummels nothing but the open air ahead. ~ 'DondaddyD'. Player of the Unspoken Game
  • TheStoneTheStone Posts: 2,291
    Don't waste money on an accountant for a one off £35k contract.

    If you go with a Ltd company, you pay yourself in two ways.

    1) Wages, which has 13.8% ENI on top, then your normal income tax and national insurance.
    2) Dividend. Company pays 21% corp tax, then from the divd you take, you pay 0% below upper tax band, 25% above.

    The second is much better below the upper band, a bit better above.

    Plus you charge and pay VAT.

    An accountant will cost at least 1k/year, plus a lot more admin for you.
    exercise.png
  • SketchleySketchley Posts: 4,235
    edited March 2013
    DonDaddyD wrote:
    The contract is for three months, assuming I perform well then I am to be moved onto a fixed term contract payed via PAYE.

    The sticking point is that in order to secure the contract I will have to set up a Ltd or use an Umbrella. The pay won't be at the higher rate of tax - in fact I don't think they are offering enough for a contractor, but I want the job. I need to go back to the drawing board on this one and think.

    They don't need you to be a LTD company. You could be self employed for three months without one, just send them an invoice to pay each week / month and then file a self assement tax return at end of the year. However, you would not have any professional or public liability. I'd suggest using an umbrella company to handle this for you, although there will be a fee.

    However, this is all a little silly on thier part and I would be wary of why they want to do this. They can employ you on three month probation basis and get rid of you with one weeks notice if they want with little or no explaination. so there is no reason for them to do this. The only reasons would be trying to limit costs of handling the payroll (although this is tiny compared to agency / umberella comp costs) or some dodgy account or tax avoidence / evasion on thier part or that they are incompetent; if either of the last two run, if the first negoiate and take a small hit for 3 months to cover thier admin. Alternatively I'd tell them that if they do not want to employ you direct for first three month that you will use an agency / umbrella company and you expect them to pick up the cost, which they will no longer have to pay once you go full time.

    Also, if they are not employing you direct for what is effectively three month probation, make sure you get it in writting and contracted what happens in three months time. What job you will be offered on what conditions. If it was me I'd also be looking to see them set criteria against which you will be judge at the end of the three months.

    Also also, if you go via agency / umbrella then make sure they will pay you even if the company you are working for don't. They will have debt collection already in place. Do you have the time to chase payment if they decide to not pay you for the last few week of the three months then let you go?

    This does sound a little fishy... Have you googled the company or looked on linked in for ex employee's to see if there is any pattern for mis treating or ripping off employees?
    --
    Chris

    Genesis Equilibrium - FCN 3/4/5
  • SketchleySketchley Posts: 4,235
    DonDaddyD wrote:
    Sketchley wrote:
    What is your motivation for wanting to do this? Tax avoidence?
    Mr_Ribble wrote:
    +1 to what Sketchley said.

    People in the banking industry (mainly IT contractors) have been doing this for years, and the government has begun to clamp down on it with the introduction of IR35.

    Speak to companies that provide umbrella services and they will tell you whether its worth while. At 35K per annum though, I doubt it. There is a fine line between avoidance and evasion, and the latter is essentially stealing from the country and your pass to spending time at her Majesty's pleasure.
    I should clarify, I don't want to avoid tax. I want the job.

    What I want to know is what tax is to be paid.

    The Ltd Company would have me as the Director and Ms DDD as the Company Secretary.

    From the posts it seems:

    I would be paying 20% corporation tax.
    National Insurance for me as I would be the person working. (Would I need to pay Mrs DDD)

    I could go with an umbrella but if I do that I still want to know where my money is going so if anyone could clearly list what tax/insurance/costs are paid by a Ltd Company and at what percentage (assume lower rate) that would be great point in the right direction.

    And don't worry, I'm on the case for an accountant.


    Corp tax is payable on profit. If you pay all the money into the ltd company out to yourself via PAYE then there is no profit. You can not pay all the money as paye, then what is left is profit. Company pay 20% then you pay out a dividend, which you then effectively pay the difference detween between income tax corp tax on. Net effect with IR35 is you pay the same tax either way.

    So money comes in. You pay it all to yourself less 10% employers National Insurance. You then pay tax and NI the same as any other time.
    --
    Chris

    Genesis Equilibrium - FCN 3/4/5
  • tailwindhometailwindhome Posts: 15,912
    So.....you are going to walk away from your job for a 3 month contract?

    Seems mad
    Believe that a farther shore
    Is reachable from here.
    Believe in miracles
    And cures and healing wells
  • DonDaddyDDonDaddyD Posts: 12,689
    Thanks Stone and Sketch

    Can someone test and tell me if this calculator is correct? http://www.sjdaccountancy.com/contracto ... index.html

    Sketch I'll send you a PM explaining the background. It's nuts and its a shame that I understand this to be the norm...
    Food Chain number = 4

    A true scalp is not only overtaking someone but leaving them stopped at a set of lights. As you, who have clearly beaten the lights, pummels nothing but the open air ahead. ~ 'DondaddyD'. Player of the Unspoken Game
  • tailwindhometailwindhome Posts: 15,912
    Sketchly, have you any expertise in this area?
    Believe that a farther shore
    Is reachable from here.
    Believe in miracles
    And cures and healing wells
  • tailwindhometailwindhome Posts: 15,912
    DonDaddyD wrote:
    I don't want to avoid tax.


    Er....Why?


    Just out of interest what sort of service will you be offering?
    Believe that a farther shore
    Is reachable from here.
    Believe in miracles
    And cures and healing wells
  • bigmatbigmat Posts: 5,111
    TheStone wrote:
    DonDaddyD wrote:
    assume my ltd company is being paid £35k per annum?

    Have a look at an umbrella company.
    For that kind of turnover, it's probably not worth the extra effort of having a limited company.

    I was going to just recommend asking TheStone, but he has got there first. FWIW my wife used an umbrella company in similar situation / for similar income.
  • rjsterryrjsterry Posts: 18,954
    TheStone wrote:
    Don't waste money on an accountant for a one off £35k contract.

    If you go with a Ltd company, you pay yourself in two ways.

    1) Wages, which has 13.8% ENI on top, then your normal income tax and national insurance.
    2) Dividend. Company pays 21% corp tax, then from the divd you take, you pay 0% below upper tax band, 25% above.

    The second is much better below the upper band, a bit better above.

    Plus you charge and pay VAT.

    An accountant will cost at least 1k/year, plus a lot more admin for you.

    VAT is a separate issue: you can be a sole trader and still be VAT registered. Similarly, I'm pretty sure that at a one off £35K contract, you wouldn't HAVE to be VAT registered as a Ltd. Co., although it might raise a few eyebrows if you weren't.
    1985 Mercian King of Mercia - work in progress (Hah! Who am I kidding?)
    Pinnacle Monzonite

    Liberal metropolitan, remoaner, traitor, "sympathiser", etc.
  • DonDaddyDDonDaddyD Posts: 12,689
    DonDaddyD wrote:
    I don't want to avoid tax.


    Er....Why?


    Just out of interest what sort of service will you be offering?

    I don't even understand how tax works or what tax I should be paying via a Ltd. Better to understand what I'm paying before I try to avoid paying it....

    Also, I have four months to run on my present contract. I've finished the major target, place sucks, I'm jumping overboard.
    Food Chain number = 4

    A true scalp is not only overtaking someone but leaving them stopped at a set of lights. As you, who have clearly beaten the lights, pummels nothing but the open air ahead. ~ 'DondaddyD'. Player of the Unspoken Game
  • tailwindhometailwindhome Posts: 15,912
    DonDaddyD wrote:
    DonDaddyD wrote:
    I don't want to avoid tax.


    Er....Why?


    Just out of interest what sort of service will you be offering?

    I don't even understand how tax works or what tax I should be paying via a Ltd. Better to understand what I'm paying before I try to avoid paying it....

    Also, I have four months to run on my present contract. I've finished the major target, place sucks, I'm jumping overboard.


    You understand though that for a company, tax is paid on profit. You want to make sure that you set every possible LEGITIMATE expense against your turnover to minimise taxable profit.

    You need to speak to a real qualified accountant who has experience in advising people in your situation.

    I'm a real qualified accountant, but work in industry rather than in practice. I have no knowledge of setting up companies or tax advice but know enough to know that getting it wrong can be very expensive. It's a bit like using a solicitor to buy a house. You could research online and do the paperwork yourself but the money saved would look like peanuts when they build new motorway through your garden.
    Believe that a farther shore
    Is reachable from here.
    Believe in miracles
    And cures and healing wells
  • Mr_RibbleMr_Ribble Posts: 1,055
    DonDaddyD wrote:
    Sketchley wrote:
    What is your motivation for wanting to do this? Tax avoidence?
    Mr_Ribble wrote:
    +1 to what Sketchley said.

    People in the banking industry (mainly IT contractors) have been doing this for years, and the government has begun to clamp down on it with the introduction of IR35.

    Speak to companies that provide umbrella services and they will tell you whether its worth while. At 35K per annum though, I doubt it. There is a fine line between avoidance and evasion, and the latter is essentially stealing from the country and your pass to spending time at her Majesty's pleasure.
    I should clarify, I don't want to avoid tax. I want the job.

    This clip will tell you everything you need to know : http://www.youtube.com/watch?v=lS_V5BJgdZk
  • SketchleySketchley Posts: 4,235
    Sketchly, have you any expertise in this area?

    I'm neither a recuitment consultant, accountant or a contractor if that's what you mean. I do have lot's of friends that contract but at much higher value than this one. Most got slammed by IR35 when it came out, many of them had avoidence schemes for it, some worked other didn't, some got stung some didn't. So I know a bit but I am no expert. However, my firm employs 100+ people many on temp / casual contracts but we always handle the PAYE for them as they are low value and we don't use agencies. I know a bit about employement law, tupe etc as we come accross this a lot in my line of work. The only reason I took an interest in the post is something didn't seem right, I couldn't understand the motivation for why the employer was insisting on three month initial contract as a freelance, now DDD has explained background in PM it makes perfect sense, and I don't think anything suspicious is happening any more.
    --
    Chris

    Genesis Equilibrium - FCN 3/4/5
  • TheStoneTheStone Posts: 2,291
    Sketchley wrote:
    However, my firm employs 100+ people many on temp / casual contracts but we always handle the PAYE for them as they are low value and we don't use agencies.

    Slightly OT, but how does that work legally?

    I thought the main reason to use a contract or agency was so you wouldn't have any responsibly towards the 'worker'. Can you pay someone PAYE without also giving them full employment rights?

    I suspect even sacking someone in a probation period isn't that easy, but a contract/temp very simple.
    exercise.png
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