How to avoid tax
Discussion
Note the word avoid not evade.
I am starting a new company after Christmas. I am investing 4 figures.
For at least the first financial year I want to not draw any wage or dividends and grow the company so I have cashflow without having to resort to loans etc.
But if I just throw this money in the bank account and leave it there I will have to pay atleast CGT on it right? So 20% of it gone that I can't re-invest.
The nature of the business is cash in - cash multiplied - cash out, there are no products to purchase, no inventory, no fixed assets, etc, the whole nature of the business is a service.
How can I avoid paying CGT at the end of the year so I can build enough reserve capital to actually use it to generate more money?
Note I don't mind paying CGT...just don't want to pay 20% of it to the HMRC when I am not even taking any of the profit as income as the sole director!
I am starting a new company after Christmas. I am investing 4 figures.
For at least the first financial year I want to not draw any wage or dividends and grow the company so I have cashflow without having to resort to loans etc.
But if I just throw this money in the bank account and leave it there I will have to pay atleast CGT on it right? So 20% of it gone that I can't re-invest.
The nature of the business is cash in - cash multiplied - cash out, there are no products to purchase, no inventory, no fixed assets, etc, the whole nature of the business is a service.
How can I avoid paying CGT at the end of the year so I can build enough reserve capital to actually use it to generate more money?
Note I don't mind paying CGT...just don't want to pay 20% of it to the HMRC when I am not even taking any of the profit as income as the sole director!
I assume you mean corporation tax and not Capital gains tax ?
You only pay corp tax on profit, there is some valid expenses you can "expense" therefore reducing down profit and therefore any corp tax due.
Get a decent accountant with some experience in what ever you plan to "trade in".
You only pay corp tax on profit, there is some valid expenses you can "expense" therefore reducing down profit and therefore any corp tax due.
Get a decent accountant with some experience in what ever you plan to "trade in".
twoblacklines said:
Note the word avoid not evade.
I am starting a new company after Christmas. I am investing 4 figures.
For at least the first financial year I want to not draw any wage or dividends and grow the company so I have cashflow without having to resort to loans etc.
But if I just throw this money in the bank account and leave it there I will have to pay atleast CGT on it right? So 20% of it gone that I can't re-invest.
The nature of the business is cash in - cash multiplied - cash out, there are no products to purchase, no inventory, no fixed assets, etc, the whole nature of the business is a service.
How can I avoid paying CGT at the end of the year so I can build enough reserve capital to actually use it to generate more money?
Note I don't mind paying CGT...just don't want to pay 20% of it to the HMRC when I am not even taking any of the profit as income as the sole director!
I am starting a new company after Christmas. I am investing 4 figures.
For at least the first financial year I want to not draw any wage or dividends and grow the company so I have cashflow without having to resort to loans etc.
But if I just throw this money in the bank account and leave it there I will have to pay atleast CGT on it right? So 20% of it gone that I can't re-invest.
The nature of the business is cash in - cash multiplied - cash out, there are no products to purchase, no inventory, no fixed assets, etc, the whole nature of the business is a service.
How can I avoid paying CGT at the end of the year so I can build enough reserve capital to actually use it to generate more money?
Note I don't mind paying CGT...just don't want to pay 20% of it to the HMRC when I am not even taking any of the profit as income as the sole director!
I presume you are say that you do not want to draw any "profit" from the company in the first couple of years. That is a good aim - if you can do it.
Company profits are subject to Corporation Tax, not Capital Gains Tax.
So, if you make a profit in any given year of (say) £100,000, the company will need to pay £20,000 Corporation Tax. The remaining £80,000 can be retained in the company with no further tax charge.
The only way to eliminate any Corporation Tax arising on a profit is to eliminate the profit. To eliminate a profit usually means having to have incurred actual, genuine costs - either business costs that can be offset directly against the profit or capital expenditure on which Capital Allowances can be claimed..
The Ltd pays corporation tax on its profits.
If possible you should draw salary at lease up to the employer NI threshold to utilise as much of your nil rate tax band as possible. This will be an expense of the Ltd so no corporation tax on it.
For this tax year you can draw up to a further £30,000 odd with out any further tax liability as the corporation tax you pay covers it. Note previous earnings this tax year need to be offset against this.
For next tax year you can only draw £5000 dividends on the same basis, thereafter there is a dividend tax of 7.5% up to the 40% rate income tax threshold and 32.5% up to the 45% income tax threshold.
So, even though you say you don't need the money if the Ltd has it this tax year you should probably draw it to avoid even higher taxed next year.
If possible you should draw salary at lease up to the employer NI threshold to utilise as much of your nil rate tax band as possible. This will be an expense of the Ltd so no corporation tax on it.
For this tax year you can draw up to a further £30,000 odd with out any further tax liability as the corporation tax you pay covers it. Note previous earnings this tax year need to be offset against this.
For next tax year you can only draw £5000 dividends on the same basis, thereafter there is a dividend tax of 7.5% up to the 40% rate income tax threshold and 32.5% up to the 45% income tax threshold.
So, even though you say you don't need the money if the Ltd has it this tax year you should probably draw it to avoid even higher taxed next year.
Yes - if a director injects substantial funds into a company as a "Loan" rather than as share capital - or donates to the company other forms of assets such as plant and machinery, the director can, if he so wishes, draw out of the company over the following years and months, the money or money's worth he has put in. Because this money is in effect, the return to the director of the capital value of the loan he gave the company, it is not taxable in the hands of the director.
There are restrictions involved in this so it is not a licence to print money for a director. But it is not an unusual situation for small, owner/managed companies.
There are restrictions involved in this so it is not a licence to print money for a director. But it is not an unusual situation for small, owner/managed companies.
Care is needed. See an accountant before you start - not after it's all gone horribly wrong!
PurpleMoonlight has helpfully set out the basics. But see an accountant! A limited company is a magic carpet which allows you to fly away from every business problem.
Do you actually NEED limited liability? Some people think it's sexy being "managing director" of a p155-pot little company but there's really no point doing it unless you get something tangible in return for the cost/hassle.
PurpleMoonlight has helpfully set out the basics. But see an accountant! A limited company is a magic carpet which allows you to fly away from every business problem.
Do you actually NEED limited liability? Some people think it's sexy being "managing director" of a p155-pot little company but there's really no point doing it unless you get something tangible in return for the cost/hassle.
Ozzie Osmond said:
Care is needed. See an accountant before you start - not after it's all gone horribly wrong!
PurpleMoonlight has helpfully set out the basics. But see an accountant! A limited company is a magic carpet which allows you to fly away from every business problem.
Do you actually NEED limited liability? Some people think it's sexy being "managing director" of a p155-pot little company but there's really no point doing it unless you get something tangible in return for the cost/hassle.
Good advice - take it!PurpleMoonlight has helpfully set out the basics. But see an accountant! A limited company is a magic carpet which allows you to fly away from every business problem.
Do you actually NEED limited liability? Some people think it's sexy being "managing director" of a p155-pot little company but there's really no point doing it unless you get something tangible in return for the cost/hassle.
Remember, you don't pay tax if you don't make a profit.
I have a mate who spend ages setting up tax efficient companies. The trouble is he does not spend enough time making sure they will generate significant profits. They tend to just drift into oblivion after a few years.
Just another good idea, or so it seemed at the time.
I have a mate who spend ages setting up tax efficient companies. The trouble is he does not spend enough time making sure they will generate significant profits. They tend to just drift into oblivion after a few years.
Just another good idea, or so it seemed at the time.
I NEED limited liability.
All of the cash is via director loan but I don't want to take any out. I want to build working capital. It seems silly paying 20% of it to the government and 0% of it to myself.
I meant corporation tax not CGT sorry.
Accountants are expensive. Especially tax accountants!
All of the cash is via director loan but I don't want to take any out. I want to build working capital. It seems silly paying 20% of it to the government and 0% of it to myself.
I meant corporation tax not CGT sorry.
Accountants are expensive. Especially tax accountants!
twoblacklines said:
I NEED limited liability.
All of the cash is via director loan but I don't want to take any out. I want to build working capital. It seems silly paying 20% of it to the government and 0% of it to myself.
I meant corporation tax not CGT sorry.
Accountants are expensive. Especially tax accountants!
Seriously, don't even think about setting up a business without talking to an accountant.All of the cash is via director loan but I don't want to take any out. I want to build working capital. It seems silly paying 20% of it to the government and 0% of it to myself.
I meant corporation tax not CGT sorry.
Accountants are expensive. Especially tax accountants!
It will cost a few hundred quid at most and ensure you use all the basic allowances.
You will only pay tax on the profit you make from the trade, not on the capital you put in.
I get the sense that you don't quite understand how it works, so a few hundred on an accountant will be money well spent.
Why do you NEED limited liability?
twoblacklines said:
Accountants are expensive. Especially tax accountants!
Welcome to the world of business. Everyone wants their cut. The less you give to one person the more another will want to help you avoid giving to said other person.Get used to it - the govt are going after small businesses like rabid dogs at the moment..
twoblacklines said:
I NEED limited liability.
All of the cash is via director loan but I don't want to take any out. I want to build working capital. It seems silly paying 20% of it to the government and 0% of it to myself.
I meant corporation tax not CGT sorry.
Accountants are expensive. Especially tax accountants!
They're not that expensive, depending on how complex your books are. Anyway, if you're limited, you're not going to have a choice as you are not capable of preparing the accounts to the required standard on your own.All of the cash is via director loan but I don't want to take any out. I want to build working capital. It seems silly paying 20% of it to the government and 0% of it to myself.
I meant corporation tax not CGT sorry.
Accountants are expensive. Especially tax accountants!
You don't pay corporation tax on the cash you inject into the business, only on the profit after expenses and costs are taken into account.
That's the law, it's no different than if it was in the bank gaining interest, you pay tax on the annual interest gained.
twoblacklines said:
I NEED limited liability.
Then IMO you also NEED some proper share capital in the company. Anyone who's buying a business-critical service will want to be assured there's some substance to the contractor they engage. You'll presumably NEED some good liability insurance cover in place as well. Again, any customer worth their salt will ask to see it.
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