Tax / NI Liabilities for new venture.... help please
Discussion
Ladies and gents,
In summary...
Seriously considering making the jump to fully self employed.
Business model for the purposes keeping it simple..
I will be self employed, having bought into a franchise, and obtain income through sales. Invoice upon signed contract, payment upon completion.
My overheads will be; Me, car, and any additional advertising I choose to use.
What are my best options with respect to Tax/NI and VAT? I would be in excess of the threshold for VAT.
Any help is appreciated.
In summary...
Seriously considering making the jump to fully self employed.
Business model for the purposes keeping it simple..
I will be self employed, having bought into a franchise, and obtain income through sales. Invoice upon signed contract, payment upon completion.
My overheads will be; Me, car, and any additional advertising I choose to use.
What are my best options with respect to Tax/NI and VAT? I would be in excess of the threshold for VAT.
Any help is appreciated.
As a sole-trader there aren't that many options.
You pay Income Tax and Class 4 NI on your taxable profit from your self-employed activity.
You also pay the weekly Class 2 Self Employed NI.
Tax savings can be made by judicious use of Capital Allowances i.e. making sure that the assets you buy for use in the business are eligible for the best Capital Allowance rates (e.g. chosing a van rather than a car).
On the VAT front, it looks like you will have to register. There are some options open to small businesses.
Normal VAT system - VAT declared on your sales invoices, VAT reclaimed on your purchase and expense invoices
Cash Accounting VAT system - you declare VAT on your cash receipts, you reclaim VAT on your bank/cash/credit card payments
Flat Rate Scheme - you declare VAT on your sales based on a specific Flat Rate of VAT peculiar to your actual business sector. You do not normally reclaim VAT on your costs although you can reclaim VAT on cpaital expenditure exceeding £2,000.
You pay Income Tax and Class 4 NI on your taxable profit from your self-employed activity.
You also pay the weekly Class 2 Self Employed NI.
Tax savings can be made by judicious use of Capital Allowances i.e. making sure that the assets you buy for use in the business are eligible for the best Capital Allowance rates (e.g. chosing a van rather than a car).
On the VAT front, it looks like you will have to register. There are some options open to small businesses.
Normal VAT system - VAT declared on your sales invoices, VAT reclaimed on your purchase and expense invoices
Cash Accounting VAT system - you declare VAT on your cash receipts, you reclaim VAT on your bank/cash/credit card payments
Flat Rate Scheme - you declare VAT on your sales based on a specific Flat Rate of VAT peculiar to your actual business sector. You do not normally reclaim VAT on your costs although you can reclaim VAT on cpaital expenditure exceeding £2,000.
Not really. Tax is different for limited companies as opposed to sole-traders.
With a limited company the COMPANY pays its own Corporation Tax on its net trading profits. These trading profits are arrived at after deducting allowable business costs (including salaries paid to directors and employees) and Capital Allowances but NOT dividends paid to shareholders.
Corporation tax is currently set at 21% for small company profits (i.e. profits under £300,000).
A director is liable to personal Income Tax (i.e. PAYE) and NI (both Employee's and Em[ployer's Contributions) on salaries drawn from his company. This PAYE and NI is deducted by the company and paid over (usually) on a monthly or quarterly basis. To administer the PAYE correctly, the company must register as an employer and obtain a PAYE reference.
HOWEVER, if the company pays the director BELOW the current NI threshold (currently £5,720 per annum), no tax or NI will be payable.
This is often the strategy adopted by directors of owner managed companies although it isn't always an option and there may be reasons why a dfirector WANTS to pay his normal Class 1 National Insurance contributions.
The director, who will also be a shareholder, can withdraw money from his company in the form of a dividend. Dividends are also subject to Income Tax but the rules work out very favourably for individuals compared to salary.
No tax is payable on a dividend unless the individual's overall income from all sources in the tax year is high enough to put him into the higher rate tax barcket. For the current year this means exceeded £43,875.
Dividends may not always an option, however, because of legal restrictions which might apply to the company (not enough reserves, for example).
Under current rules, it is generally accepted that a small business will start to benefit from being a limited company if its annual profits are greater than £40,000 and the mixing and matching of salary levels versus dividend levels can be optimised.
What is right for an individual does depend on their personal circumstances so a definitive answer as to what is best for you is not really possible without looking at the overall situation.
With a limited company the COMPANY pays its own Corporation Tax on its net trading profits. These trading profits are arrived at after deducting allowable business costs (including salaries paid to directors and employees) and Capital Allowances but NOT dividends paid to shareholders.
Corporation tax is currently set at 21% for small company profits (i.e. profits under £300,000).
A director is liable to personal Income Tax (i.e. PAYE) and NI (both Employee's and Em[ployer's Contributions) on salaries drawn from his company. This PAYE and NI is deducted by the company and paid over (usually) on a monthly or quarterly basis. To administer the PAYE correctly, the company must register as an employer and obtain a PAYE reference.
HOWEVER, if the company pays the director BELOW the current NI threshold (currently £5,720 per annum), no tax or NI will be payable.
This is often the strategy adopted by directors of owner managed companies although it isn't always an option and there may be reasons why a dfirector WANTS to pay his normal Class 1 National Insurance contributions.
The director, who will also be a shareholder, can withdraw money from his company in the form of a dividend. Dividends are also subject to Income Tax but the rules work out very favourably for individuals compared to salary.
No tax is payable on a dividend unless the individual's overall income from all sources in the tax year is high enough to put him into the higher rate tax barcket. For the current year this means exceeded £43,875.
Dividends may not always an option, however, because of legal restrictions which might apply to the company (not enough reserves, for example).
Under current rules, it is generally accepted that a small business will start to benefit from being a limited company if its annual profits are greater than £40,000 and the mixing and matching of salary levels versus dividend levels can be optimised.
What is right for an individual does depend on their personal circumstances so a definitive answer as to what is best for you is not really possible without looking at the overall situation.
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