advantages of being limited?
Discussion
Ive been limited for a few years now and never really looked at the benefits I can get from it? mate of mine has been told by his accountant that as a company director he can pay for his holidays from his business account and put it through ?? is this the case ? and if so what else am I in the dark about and missing out on 
tia
tia
May I pertinently add to the OP's query...
Looking at the tax bands - a normal or self-employed person will pay 20% on 0 to £36K of taxable income, and 40% on anything over £36K.
These figures seem to be 10% and 32.5% respectively (on 'dividend' income) if you're a Company!!
So surely any business would be do well to 'turn Limited' - and get a good accountant to organise it so the owner's on a very basic salary - and then give the rest as dividends?
Looking at the tax bands - a normal or self-employed person will pay 20% on 0 to £36K of taxable income, and 40% on anything over £36K.
These figures seem to be 10% and 32.5% respectively (on 'dividend' income) if you're a Company!!
So surely any business would be do well to 'turn Limited' - and get a good accountant to organise it so the owner's on a very basic salary - and then give the rest as dividends?
JeffC said:
Ive been limited for a few years now and never really looked at the benefits I can get from it? mate of mine has been told by his accountant that as a company director he can pay for his holidays from his business account and put it through ?? is this the case ? and if so what else am I in the dark about and missing out on
tia
The technical knowledge of your mate's accountant sounds woefully inadequate to me.tia
The rules for offsetting business expenses against business profits are fundamentally the same for limited companies, sole-traders and partnerships. The essential allowability test is that the expense must have been incurred "wholly and exclusively for the purpose of the trade".
Personal "holidays" or any other non-business related costs are not allowable in any circumstances - no matter how you chose to trade.
There are SOME differences, of course -
The proprietors of a sole trader/partnersip are taxed on the Net Profit of the business, not on what they draw from the business.
Therefore, the sole-trade/partnership business is not actually taxed in itself. It's the proprietors who pay tax on the business profits (as stated above)
The directors of a limited company are taxed on their salaries from the company
The shareholders of a company are taxed on their dividends from the company
Limited companies pay Corporation Tax on the company profits. The taxable company profits are arrived at AFTER directors' salaries have been deducted but BEFORE dividends have been deducted.
Limited companies also have complex tax regulations governing loans by the company to directors and "connected persons" so directors need to be aware of the tax implications of drawing money out of their company that they don't consider to be salary or dividends.
There are SOME advantages in operating through a company - some are due to tax and NI rules being applied differently to salaries, dividends and other forms of remuneration to the proprietors. There is also the genuine advantage of limiting your liability. The advantages are countered by the requirement to be much more financially and tax savvy - and to make sure that your accountant is completely on the ball and up top speed on the more complex regulations that govern limited companies - unlike your mate's accountant.
Accountancy fees will be at least double what they are for a similar sized sole tradership/partnership.
Aside from the protection a Ltd company provides, there is also the issue of “appearance”.
If you now or in the future, intend selling your services/products to a public sector body for instance, none will consider you unless you are limited.
If at some stage in the future you sell your business, it will be very difficult to get the true market value and you would probably end up on a 100% two-year earn-out as a result.
If you now or in the future, intend selling your services/products to a public sector body for instance, none will consider you unless you are limited.
If at some stage in the future you sell your business, it will be very difficult to get the true market value and you would probably end up on a 100% two-year earn-out as a result.
StevieBee said:
Aside from the protection a Ltd company provides, there is also the issue of “appearance”.
If you now or in the future, intend selling your services/products to a public sector body for instance, none will consider you unless you are limited.
If at some stage in the future you sell your business, it will be very difficult to get the true market value and you would probably end up on a 100% two-year earn-out as a result.
News to me, been dealing with government bodies for years and never had this.If you now or in the future, intend selling your services/products to a public sector body for instance, none will consider you unless you are limited.
If at some stage in the future you sell your business, it will be very difficult to get the true market value and you would probably end up on a 100% two-year earn-out as a result.
Dave_ST220 said:
StevieBee said:
Aside from the protection a Ltd company provides, there is also the issue of “appearance”.
If you now or in the future, intend selling your services/products to a public sector body for instance, none will consider you unless you are limited.
If at some stage in the future you sell your business, it will be very difficult to get the true market value and you would probably end up on a 100% two-year earn-out as a result.
News to me, been dealing with government bodies for years and never had this.If you now or in the future, intend selling your services/products to a public sector body for instance, none will consider you unless you are limited.
If at some stage in the future you sell your business, it will be very difficult to get the true market value and you would probably end up on a 100% two-year earn-out as a result.
StevieBee said:
Dave_ST220 said:
StevieBee said:
Aside from the protection a Ltd company provides, there is also the issue of “appearance”.
If you now or in the future, intend selling your services/products to a public sector body for instance, none will consider you unless you are limited.
If at some stage in the future you sell your business, it will be very difficult to get the true market value and you would probably end up on a 100% two-year earn-out as a result.
News to me, been dealing with government bodies for years and never had this.If you now or in the future, intend selling your services/products to a public sector body for instance, none will consider you unless you are limited.
If at some stage in the future you sell your business, it will be very difficult to get the true market value and you would probably end up on a 100% two-year earn-out as a result.
Which just shows how stupid government departments are.
There are many, many bona fide l;egitimate sole traders out there who are perfectly legally running valid businesses who are not and do not want to be limited companies. And, of course, there is no obligation on any trader to run their operation through a limited company if they don't want to.
If an individual sets up a limited company purely because he or his customers are concerned that he might be vulnerable to being classified as an "employee", then it is obvious to me that his limited company operation will also be vulnerable to an IR35 attack by HMRC.
An alternative might be to set the business up as a partnership - although even partnerships can be exposed to IR35 (the IR35 legislation never mentions the word "company" at all. It refers to "intermediary entities" - which would include companies, partnerships or any other fancy business vehicle anyone might try to set up).
There are many, many bona fide l;egitimate sole traders out there who are perfectly legally running valid businesses who are not and do not want to be limited companies. And, of course, there is no obligation on any trader to run their operation through a limited company if they don't want to.
If an individual sets up a limited company purely because he or his customers are concerned that he might be vulnerable to being classified as an "employee", then it is obvious to me that his limited company operation will also be vulnerable to an IR35 attack by HMRC.
An alternative might be to set the business up as a partnership - although even partnerships can be exposed to IR35 (the IR35 legislation never mentions the word "company" at all. It refers to "intermediary entities" - which would include companies, partnerships or any other fancy business vehicle anyone might try to set up).
Edited by Eric Mc on Tuesday 23 September 10:23
Ahem - a director is LEGALLY not an employee. Therefore, they have to be careful how they remunerate themselves, especially if the company is on the verge of going into liquidation. A director treating himself/herself as a preferrential creditor just before the big crunch is not going to make a good impression with the outside creditors - or a judge.
Eric Mc said:
Which just shows how stupid government departments are.
There are many, many bona fide l;egitimate sole traders out there who are perfectly legally running valid businesses who are not and do not want to be limited companies. And, of course, there is no obligation on any trader to run their operation through a limited company if they don't want to.
If an individual sets up a limited company purely because he or his customers are concerned that he might be vulnerable to being classified as an "employee", then it is obvious to me that his limited company operation will also be vulnerable to an IR35 attack by HMRC.
An alternative might be to set the business up as a partnership - although even partnerships can be exposed to IR35 (the IR35 legislation never mentions the word "company" at all. It refers to "intermediary entities" - which would include companies, partnerships or any other fancy business vehicle anyone might try to set up).
I've also heard that the Beeb have also started wanting freelancers to become limited companies.There are many, many bona fide l;egitimate sole traders out there who are perfectly legally running valid businesses who are not and do not want to be limited companies. And, of course, there is no obligation on any trader to run their operation through a limited company if they don't want to.
If an individual sets up a limited company purely because he or his customers are concerned that he might be vulnerable to being classified as an "employee", then it is obvious to me that his limited company operation will also be vulnerable to an IR35 attack by HMRC.
An alternative might be to set the business up as a partnership - although even partnerships can be exposed to IR35 (the IR35 legislation never mentions the word "company" at all. It refers to "intermediary entities" - which would include companies, partnerships or any other fancy business vehicle anyone might try to set up).
Edited by Eric Mc on Tuesday 23 September 10:23
As someone else has now mentioned - best thing about being a limited company, Limited Liability! Although Professional Indemnity should also be looked at, just in case and is also now being stipulated by quite a few companies..
ginettag27 said:
Eric Mc said:
Which just shows how stupid government departments are.
There are many, many bona fide l;egitimate sole traders out there who are perfectly legally running valid businesses who are not and do not want to be limited companies. And, of course, there is no obligation on any trader to run their operation through a limited company if they don't want to.
If an individual sets up a limited company purely because he or his customers are concerned that he might be vulnerable to being classified as an "employee", then it is obvious to me that his limited company operation will also be vulnerable to an IR35 attack by HMRC.
An alternative might be to set the business up as a partnership - although even partnerships can be exposed to IR35 (the IR35 legislation never mentions the word "company" at all. It refers to "intermediary entities" - which would include companies, partnerships or any other fancy business vehicle anyone might try to set up).
I've also heard that the Beeb have also started wanting freelancers to become limited companies.There are many, many bona fide l;egitimate sole traders out there who are perfectly legally running valid businesses who are not and do not want to be limited companies. And, of course, there is no obligation on any trader to run their operation through a limited company if they don't want to.
If an individual sets up a limited company purely because he or his customers are concerned that he might be vulnerable to being classified as an "employee", then it is obvious to me that his limited company operation will also be vulnerable to an IR35 attack by HMRC.
An alternative might be to set the business up as a partnership - although even partnerships can be exposed to IR35 (the IR35 legislation never mentions the word "company" at all. It refers to "intermediary entities" - which would include companies, partnerships or any other fancy business vehicle anyone might try to set up).
Edited by Eric Mc on Tuesday 23 September 10:23
As someone else has now mentioned - best thing about being a limited company, Limited Liability! Although Professional Indemnity should also be looked at, just in case and is also now being stipulated by quite a few companies..
Mr POD said:
danoli777 said:
if it goes tits up at least your house is safe.
LIMITED LIABILITY. They can only take what belongs to the company and as you are an employee, you are entitled to redundency !!And unfortunately this might mean "no house" if you got titsup.com.
BoxheadTim said:
Mr POD said:
danoli777 said:
if it goes tits up at least your house is safe.
LIMITED LIABILITY. They can only take what belongs to the company and as you are an employee, you are entitled to redundency !!And unfortunately this might mean "no house" if you got titsup.com.
Same with comapny car loans etc.
Asked my accountants (not in writing) the other day about loans from company to me and the BIK implications - they said that I could get my company to lend me up to £5k & provided it was repayed in full before the end of the Financial year then there is no issue what so ever.
Now I'd love to think thats the case but Im not 100% sure. Reason being to help out with personal cashflow & dump into mortgage overpayment then take it back out in full.
Now I'd love to think thats the case but Im not 100% sure. Reason being to help out with personal cashflow & dump into mortgage overpayment then take it back out in full.
It is ILLEGAL for a company to loan money to its own directors.
The fact that a loan existed at any time during the company's accounting year is required to be disclosed in the notes to the company accounts. If the loan remained unpaid at the company's year end date, the company will have to pay an additional Corporation Tax charge on the loan balance at the financial year end date equating to 20% of the loan balance. This extra Corporation Tax (known as Section 419 Corporation Tax) is repayable to the company once the loan balance is reduced or cleared by the director.
There is no lower limit for not having to disclose such balances. Loans greater than £1 need to be disclosed.
What happens in reality is that, if a loan existed during the year but was cleared before the balance sheet date, it will probably end up not being reported as there is no obvious evidence from the company figures that the loan had existed.
There are separate requirements for disclosure under PAYE Benefit in Kind rules i.e. details that need to be disclosed on a P11d at the end of the TAX year (not the company's financial year).
As your accountant rightly says, the Revenue do not require loans of under £5,000 to be reported on a P11d.
However, if a loan existed for an amount greater than this AT ANY TIME DURING THE TAX YEAR, then it needs to be reported. If the company did not charge the director any interest on the loan, or the interest charged was below the bank base rate, the Revenue will assess the director to a Benefit in Kind tax charge on the basis that they had a cheap or "beneficial" loan.
If the loan had been cleared by the 5th April tax year end, it STILL needs to be disclosed on the P11d showing the date the loan first exceeded £5,0000 and the date it dropped below £5,000 or was cleared (if earlier). The BIK will be worked out on the number of days the loan existed.
The fact that a loan existed at any time during the company's accounting year is required to be disclosed in the notes to the company accounts. If the loan remained unpaid at the company's year end date, the company will have to pay an additional Corporation Tax charge on the loan balance at the financial year end date equating to 20% of the loan balance. This extra Corporation Tax (known as Section 419 Corporation Tax) is repayable to the company once the loan balance is reduced or cleared by the director.
There is no lower limit for not having to disclose such balances. Loans greater than £1 need to be disclosed.
What happens in reality is that, if a loan existed during the year but was cleared before the balance sheet date, it will probably end up not being reported as there is no obvious evidence from the company figures that the loan had existed.
There are separate requirements for disclosure under PAYE Benefit in Kind rules i.e. details that need to be disclosed on a P11d at the end of the TAX year (not the company's financial year).
As your accountant rightly says, the Revenue do not require loans of under £5,000 to be reported on a P11d.
However, if a loan existed for an amount greater than this AT ANY TIME DURING THE TAX YEAR, then it needs to be reported. If the company did not charge the director any interest on the loan, or the interest charged was below the bank base rate, the Revenue will assess the director to a Benefit in Kind tax charge on the basis that they had a cheap or "beneficial" loan.
If the loan had been cleared by the 5th April tax year end, it STILL needs to be disclosed on the P11d showing the date the loan first exceeded £5,0000 and the date it dropped below £5,000 or was cleared (if earlier). The BIK will be worked out on the number of days the loan existed.
StevieBee said:
If you now or in the future, intend selling your services/products to a public sector body for instance, none will consider you unless you are limited.
It's interesing, because one reason people 'go limited' is because their business might fail and they'd lose their house. Conversely I'm self-employed and have been so for almost 20 years. I have nowhere to fall. Which one is more likely to be trading in 5 years time, me or a couple of shifty types operating as a limited company who will go bankrupt owing thousands? But the public sector is terrified of its own arse, and has no ability to make sensible decisions, which is one reason I avoid them.
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