Tax on business income NOT wages?
Discussion
Hi,
Just a quick one before I enlist the help of an accountant.
If I stop work and start a business by spending £50,000 of our own money while my wife continues to work and support us both financially, and every single penny the business takes is put straight into business savings, to be spent on expanding the business further (no income or wages are taken from any of the income).
How much tax would be payable on this business turnover?
Thanks
Just a quick one before I enlist the help of an accountant.
If I stop work and start a business by spending £50,000 of our own money while my wife continues to work and support us both financially, and every single penny the business takes is put straight into business savings, to be spent on expanding the business further (no income or wages are taken from any of the income).
How much tax would be payable on this business turnover?
Thanks
sidekickdmr said:
Hi,
Just a quick one before I enlist the help of an accountant.
If I stop work and start a business by spending £50,000 of our own money while my wife continues to work and support us both financially, and every single penny the business takes is put straight into business savings, to be spent on expanding the business further (no income or wages are taken from any of the income).
How much tax would be payable on this business turnover?
Thanks
The business will pay corporation tax on any profits, including any interest generated from the cash.Just a quick one before I enlist the help of an accountant.
If I stop work and start a business by spending £50,000 of our own money while my wife continues to work and support us both financially, and every single penny the business takes is put straight into business savings, to be spent on expanding the business further (no income or wages are taken from any of the income).
How much tax would be payable on this business turnover?
Thanks
If you put the money in as a loan you can take it back out without paying tax.
If you decide that the loan is interest bearing you will pay personal tax on the interest and get corporation tax within the business.
Hold on folks - before you all start chattering on about Corporation Tax, the first thing that has to be established is whether the OP is going to trade as an individual i.e. a sole-trader (self employed) or whether he is going to set up a limited company and trade through the company.
There are different sorts of answers depending on how the business is being run.
Firstly, for tax purposes, business income is actually defined as taxable business profits. So tax is charged on the PROFIT of the business not the turnover (sales)
Secondly, if the business is a sole tradership, the individual pays INCOME TAX (and Class 4 National Insurance) on those taxable business profits.
Thirdly, if the business is being run through a limited company, the COMPANY pays CORPORATION TAX on the COMPANY'S business profits.
In the sole trader situation, the individual is NOT taxed on what he withdraws from the business (drawings) but on the business profits BEFORE drawings.
In the limited company situation, as stated above, the company will pay Corporation Tax on the profits but the INDIVIDUAL will also pay Income Tax and NI on any salary they draw from the company and also Income Tax (but no NI) on any dividends they withdraw.
There are different sorts of answers depending on how the business is being run.
Firstly, for tax purposes, business income is actually defined as taxable business profits. So tax is charged on the PROFIT of the business not the turnover (sales)
Secondly, if the business is a sole tradership, the individual pays INCOME TAX (and Class 4 National Insurance) on those taxable business profits.
Thirdly, if the business is being run through a limited company, the COMPANY pays CORPORATION TAX on the COMPANY'S business profits.
In the sole trader situation, the individual is NOT taxed on what he withdraws from the business (drawings) but on the business profits BEFORE drawings.
In the limited company situation, as stated above, the company will pay Corporation Tax on the profits but the INDIVIDUAL will also pay Income Tax and NI on any salary they draw from the company and also Income Tax (but no NI) on any dividends they withdraw.
Highly likely to be a Ltd company with me and my wife.
Unless there is a benefit of doing it differently?
So the Idea is, spend £50,000 of our own money on building one holiday lodge, I will manage/maintain/clean/promote/book/market this and get it as booked up as possible.
All of the income this let brings in will build up and up in a savings account until we have £50,000 in the bank, when I will build number 2.
Once number 2 is built we will start to take some wages, but it’s the period between 1 and 2 I’m interested in at this stage.
Unless there is a benefit of doing it differently?
So the Idea is, spend £50,000 of our own money on building one holiday lodge, I will manage/maintain/clean/promote/book/market this and get it as booked up as possible.
All of the income this let brings in will build up and up in a savings account until we have £50,000 in the bank, when I will build number 2.
Once number 2 is built we will start to take some wages, but it’s the period between 1 and 2 I’m interested in at this stage.
Edited by sidekickdmr on Thursday 26th May 13:43
The tax rules for holiday lets are quite different to the tax rules on ordinary rental properties - so before you rush off and set up everything through a limited company, talk to an accountant regarding the various options.
And don't forget the Capital Gains Tax side of things when it comes to the time when the property is being disposed of. If it's held by a limited company, that does mean added complications and perhaps more tax for you to pay.
It's not straightforward at all.
And don't forget the Capital Gains Tax side of things when it comes to the time when the property is being disposed of. If it's held by a limited company, that does mean added complications and perhaps more tax for you to pay.
It's not straightforward at all.
Maybe you want to be mortgage free, but it seems to me you're missing a trick if you don't at least consider using the £50K as a deposit on several cabins and building your dream a lot quicker. After all I'm sure you've worked out how long it will take to build up the £50K savings for cabin two? Also leveraging the money you have will make voids less painful.
I've not had any dealings with this company yet but they were pointed out to me as I am considering a smallholding / leisure type venture such as you're doing.
http://www.farmandcountryfinance.co.uk/farm-financ...
Something else to ask the accountant about?
I've not had any dealings with this company yet but they were pointed out to me as I am considering a smallholding / leisure type venture such as you're doing.
http://www.farmandcountryfinance.co.uk/farm-financ...
Something else to ask the accountant about?
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