Quote:
Originally Posted by skyblueheroes
I think the most lucrative way is to form a company. Then do something like put you and Mrs T as 50% shareholders each. Pay yourself a nominal amount (below high rate tax) and Mrs T something similar. Then any spare money gets paid as dividends at the end of the year.
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Which is great until the tax man comes and prosecutes you.
This is what happened with the Artic systems case as mentioned above - and although the tax man lost, they have closed the loop hole so there is no leeway in that area. Safest thing to do (unless you can actually prove your wife is doing work for the company) is to be the sole shareholder.
Personally I think setting up your own limited company is the best way, but bear in mind, you will be taxed every which way.
Firstly, you'll pay your self a salary from the company turnover - but your company will have to pay the company NI as well, as well as you paying your own NI on the salary you pay yourself, so you're looking at an extra 8% (or so - I forget the exact figure) of the salary you pay yourself, being taken from the company. (Your own salary will then be taxed)
Your comany will be taxed at 20% (they just put up the rate last year from 19% to 20%) on any profit it makes - so this is any money left after salary, NI, expenses, operating costs.
When you pay yourself dividends, they will be taxed as well, at 22.5% if you are a lower rate tax payer, or 32.5% if you are a higher rate tax payer (bearing in mind the limit for higher tax is only about 38k - and you can hit that quite easily paying yourself dividends).
.. but it's not all doom and gloom.
Firstly, you've got expenses, put whatever you can through the company.
Current rules are that you are allowed to claim regular travel to and from (mileage & public transport/taxis) , including parking costs, for your place of work for 2 years - you can carry on claiming after that, if you move sites, providing that the new site is 5 miles + away.
You can also stick through your accountant fees, which is good, and any IT costs.
Postage, stationary, phone, internet can all go through too.
The tax man also allows you to spend £150 per member of staff on christmas dos, which is taken out before tax.
Depending on how much money you will need coming in, and how much money you will have coming in, there are various schemes that allow you to take the money out of the company in tax efficient ways - the only issue is that it takes time - for example, you can, leave as much money in the company as possible, then x years down the line, wind up the company, and take all the money tax free - various contractors do that from abroad - shutting down the company just as they leave and taking all the money with them. The issue is there, that you then have to ask the tax man for permission to start a new company, if that's what you intend to do - and there is always a chance that they will say no - you can also invest via the company, hold the assets for x years, and then sell them.
If your company is going to be invoicing more than 60k in a year (I think thats the limit) you will need to register for VAT - you can then register for the flat rate scheme - which basically means you charge your clients 17.5%, and then depending on your line of business (there is a chart that tells you this) - you will then get to keep a percentage of that money. So in my case as an IT contractor I get a 5% discount (4% discount + 1% in the first year) - so I only pass on 12.5% to the tax man, and keep the rest. (whcih the tax man then taxes at 20% but that's a different matter).
Pensions are one of the few tax breaks avaliable to contractors/companies right now - since April 2006 the rules changed (A Day, it's called) - the long and the short of it is, is that your company can now directly fund your personal pension, upto £215,000 a year (though it's generally thought that it's a bad move to fund it by more than your salary as it gets the tax man angry) - and this is taken out before corporation tax - saving you 20% on that money.
I'd recommend against getting a company car through your company - the tax man has gone on an offensive just recently, and it's no longer as good as it used to be - it's far more tax efficient to claim your mileage back (40p per mile)
Sorry, that kind of meandered around, but hopefully the salient points are there.
General Info :
I used this place to set up my company all those years ago
www.companies4less.com - I think handyman used them too - the website looks cheap, but I've used them for about 4 years now, and it does cut down the costs (it's also worth upgrading so you can administer online)
If you are going to register for VAT, do it as soon as you form your company - even if you set a date for which you are going to be charging VAT several months in the future. Current VAT registrations are taking 4 months - and you can't charge VAT until you have a VAT number - so if you hit the limit, or go past the date at which you thought you were going to be charging VAT - once your registration comes through, then you have to go back and back invoice your clients for the VAT - no big hassle if you have one client - but it is still a pain to avoid.
Get an accountant - it will make your life a lot easier - I can give you the name of mine if you're interested - they currently charge £95 + VAT a month, which lets them deal with all of it, (VAT reg, company returns, etc) including your own personal tax return.
Make sure your contract is IR35 friendly - if not, and you wind up in IR35 land, ignore everything I have said above - basically your comany ends up being allowed to claim 5% expenses each year, and that's about it.
Join PCG
http://www.pcg.org.uk - a) it's an expense of the company and b) being a member gives you insurance against tax man investigations - they will pay for your defence (not the actual cost of any claims against you) - they represented Arctic Systems last year.
Check out your contract for what you need in the way of insurance (Public liability, etc) - costs tend to be about £500 a year (again it's a company expense).
That's all I can think of right now
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