Do I need a limited company

DJ85

DJ85

DJ85

Associate
Joined
14 Dec 2017
Posts
2,040
Location
Aberdeenshire
Looking for some advice, I'll write down as much of the back story as possible.

I work offshore 3/3 but it doesn't aways work like that and I'm usually home more than I'm away. I'm a time served joiner and In all my time off recently I have found myself going round and helping a few of my pals doing jobs in there houses. Not paid but the odd bit here and there or beers is sufficient. But I've started enjoying it and found myself doing doing a few homers here and there. I put myself up on mybuilders.co.uk and have had a few job offers as well. As I'm not home half of the year I won't be doing it much but there could be a potential to make maybe 300/700 extra per month doing these jobs. Do I need to set up a limited company? I have looked into it and it can be set up easy enough but then I read about picking a director,accountant,shareholders,separate bank accounts etc and to be honest its a bit over my head. Do I have to pay X amount for an accountant every month when I might not even make that amount on jobs per month? And if I did do I add 19% vat on top of my prices and keep the 19% back in an account for a tax bill? The the rest would be mine or is it wise to keep in in the account as well? Then there'd the question of public liability insurance.

Basically this is just a side thing (hobby) making money in my spare time
Any advice is much appreciated.
 
You don't need directors/accountants/shareholders etc. You can setup a LTD, get a company bank account from the likes of MetroBank (free), all pretty straightforward. An accountant helps take the tax/VAT headache away but negotiate with them explaining how little they will have to do. Then you pay yourself the basic salary that will be low enough that you don't have to pay income tax on it (around £730 pm). You should ideally be VAT registered and charge VAT to your customers. Any excess in the company accounts you can keep in the company bank account or take it out as dividends which will be taxed (your accountant should be able to do your tax return too).

You will need to pay 19% corporation tax on anything you bill.
 
Years ago I used to be a contractor (in IT) and had a VAT-registered company.

Read up on IR35 and consult a professional accountant. I am well out of date but you need to consider whether or not you will be putting your offshore work through the company. You may need to speak to your offshore employer about that too. You probably fall below the VAT threshold (£85,000) so there shouldn't be an issue there: the usual thing in my time was for the client or customer to purchase the materials and pay you for the labour. There are advantages and disadvantages about being VAT-registered: your accountant will go over this with you.

There are various types of company: a sole trader, for instance, doesn't require shareholders etc whereas a limited liability (ltd) company does. The thing about shareholders, directors, and stuff is not a problem: you are the director; your partner, sibling, or parent is the secretary; you hold all the shares; and yes it's a separate bank account but it's just a separate box file.

Professional indemnity insurance is a must.

Talk to a professional.
 
Think you're drastically over thinking this...

Few things I want to make sure I'm clear on:
* This potential company will only be used for your side gig, your main income will still flow its usual source (assuming its PAYE handled by your employers payroll?)
* You expect the money you make from this to very modest, we're talking less than a couple of grand a month

If the above is true:
* Absolutely no requirement to go the Limited Company route (although there could be advantages to doing so...)
* No need to register for VAT, VAT threshold is 85k, which you're not going to hit
* It would be perfectly fine to go the sole trader route, if you do this and have half a decent head on your shoulders there is no requirement to hire an accountant. Given the level of income we're talking it doesn't seem worth it

The one thing you will need to consider is that you'll need to pay Tax and NI contributions on your second income stream. This can be done via self assessment, but depending on your tax bracket I'd look at setting aside a decent chunk of any Net income you make for the inevitable tax bill. Net Income is the key here, start keeping track of the money you receive for the work you do, and any associated expenses for that work or running your business (travel to jobs, materials, advertising) as you can deduct these when doing your self assessment.

https://www.simplybusiness.co.uk/knowledge/articles/2021/03/guide-to-second-job-tax/ - thats a nice succinct read to get you started, if you have any questions give me a shout and I'll do what I can to point you in the right direction.
 
Thanks for the replys. i have been watching youtube videos and although theyve been a little helpful. learned more reading these 3 comments. I apologise in advance for my uneducted questions: I just want to do the right thing and be organised as if i carry on doing "homers" for people and then end up getting a huge tax bill at the end of the year i wouldnt be best pleased.

@MikeTimbers so basically if i pay myself 500 per month and leave the rest in the account till the end of the yerar it can either stay there as profit and taken out as dividends at the end of the year? and that will save me paying income tax? and then add 19% to my quotes and keep that back for an HMRC bill end of the year?

@Quartz This will be completely seperate as i am employed from my employer PAYE. no problems with my being director, wife being secetary as she basically is doing that anyways whilst im away as no phone signal ofsshore!

@rid Yes all your assumptions are correct this will be on my time off doing jobs, i just thought being limited would be a safer option as itll be more organinsed, i would set back 20% of every job for the end of year self assessment, pay myself up to 730 per month as above and leave the rest and going by your link i do not expect to make £12,500 per year income tax wise anyways. I must already be in a high tax bracket in my fulltime job as i earn between 70-75k. would that put the "business" tax bill up
And expenses as you mentioned you deduct these at your self assessment is this fuel, phone bills, tools etc? i already have a car which i throw my tools in the back, already have a mobile phone contract that ill be using and id be using my personal car to go back and fore to jobs etc. Also got pretty much all the tools ill need. are these deductable? and do you need to keep all receipts till end of year and claim back? And is that only if VAT registered.

Last question, paying myself so for ease say i make 1000 per month inc vat do i put the £200 (20%) in the bank set aside, Take £500 for myself, and leave the £300 in the account to build up over the year? then at the end of the year i should get a 2400 tax bill, which will be there waiting, £3600 in the account which can be left or taken out in dividends and would have been paying myself £500 per month.

or would there be no Tax bill as less then £12,560.

As i said above just uneducated at this point and dont want to get cought out on anything.
 
Last edited:
I have a Ltd company and I can sympathise with your concerns. All I can say is it really isn't as bad as it appears to be.

I set mine up with My Company Formations. It was in the region of £20-30 to get a basic Ltd Co set up with all the legal bits. Picking the name is the tough bit. We actually had to rename recently to something nondescript so we can expand our services without a name tying us down.

4 years on, we are still not VAT registered yet. That may change this year. We pay £100ish a month for a really good accountant. A reputable company with someone who will answer our emails and pick up the phone when we ring.
With said accountant we have a virtual office which is our registered business address (no home address on companies house). They also provide us with licenses to Xero to make accounting easier.
Our business bank recently changed to Starling which was incredibly easy.

The business is taxed separate to you. It won't be affected by your extra earnings doing offshore work. You will though, as whatever you withdraw/earn will be additional to your regular earnings.

To conclude, it isn't difficult and doesn't cost much to set up a business with all the directors, certificates etc as the formation website goes through it step by step.

Are you contracting offshore? Outside-IR35 roles can go through Ltd company.
 
I used to be a contractor through a limited company quite a few years ago.
first thing is to get an accountant.
regarding the tax free allowance £12.560 - as you now have basically 2 jobs this will somehow be split in some kind of form. you don't get it twice :p
there is also the option (or used to be for me) to be vat registered and apply for flat rate VAT, which basically meant you you charge 20% but only pay x% back to HMRC. but i guess this will depend on the amount of turnover you have.
once all costs have been covered (salaries, PAYE, accountant,etc.) you're left over with the profits, which is what will get taxed through corporation tax at 19%, then the left over is the available to be paid out through dividend to yourself. -> which then means you need to file the self assessment and depending on the amount of dividend you claim may incur additional personal tax, i think the tax free dividend allowance is £2000 (?).
 
I'm slowly getting my head around it, just trying not to jump I head first and balls it up. I'm just working as a full time employee through PAYE so I'm ok that way and earnings in the high tax bracket already so I don't think the 500/700 per month would be enough to put the tax bracket up to the next level. I'll maybe stay un vat registered as not sure I want to go down the route of claiming vat back on purchases and I won't really have any! And then just keep 20% back from my earnings. I was looking at accounts and was thinking about using tide, they set up your company for you and also a tide business account, I did see starling came up as best business account perk/fees wise though. And yes name wise that's right the name I'm set on seems to have been taken but on the company house website it looks to be absolved in the next 2 months it says, so might have to tweak the name a bit or wait till its free.

@dr_volki I don't see myself making £12560 in a year to be honest but would be far off ill just make sure I get 20% of whatever I do back. I'm not sure on the tax free dividend amount but I did read dividend tax was at 15%
 
If you are working already, the £12500 is irrelevant because you have already used it for your other job so forget anything about that.

If you go through a ltd company you’ll not want to pay yourself a salary through PAYE because you have used your personal allowance and 0% NI bands already. You’ll pay corporation tax on any profits and then if you extract the profits by dividends you’ll pay tax on that too.

You need to get some professional advice and they’ll need to run some projections on what is the best route to go. They’ll really not be much in it and corporation tax is due to increase.

Limited companies have other advantages, mainly being limited liability. So if you mess up, your customer would be litigating the company and not you personally.
 
David Flett said:
I'm slowly getting my head around it, just trying not to jump I head first and balls it up. I'm just working as a full time employee through PAYE so I'm ok that way and earnings in the high tax bracket already so I don't think the 500/700 per month would be enough to put the tax bracket up to the next level. I'll maybe stay un vat registered as not sure I want to go down the route of claiming vat back on purchases and I won't really have any! And then just keep 20% back from my earnings. I was looking at accounts and was thinking about using tide, they set up your company for you and also a tide business account, I did see starling came up as best business account perk/fees wise though. And yes name wise that's right the name I'm set on seems to have been taken but on the company house website it looks to be absolved in the next 2 months it says, so might have to tweak the name a bit or wait till its free.

@dr_volki I don't see myself making £12560 in a year to be honest but would be far off ill just make sure I get 20% of whatever I do back. I'm not sure on the tax free dividend amount but I did read dividend tax was at 15%
Click to expand...
regarding the £12560 - this is your current personal tax free allowance, which you are also using in your current job. so for arguments sake, let's say it will be split 50/50 your offshore work tax free allowance will be £6280 and your tax free allowance on your directors salary through your limited company will be £6280. this is separate to any tax you may accrue on trading profits through the limited company. I hope i explained it a bit better this time.
the aim usually when going through limited company is to save on PAYE/NI contributions, hence you keep your directors salary to a minimum, while still achieving the right amount to get the years of service in for your state pension. then the rest gets paid as dividend as your as you just pay the 19% corp tax on it and whatever rate dividend tax. but no PAYE/NI contributions. just for an example i used to pay around £50-£100 NI a year, while now in permanent employment i pay many times over that a month.
 
Would it make more sense for my wife to start the limited company then as she doesn't work/ earns zero per year and claims no benefits of any kind? and then she can pay herself and i wouldn't take a wage?

b0rn2sk8 said:
You need to get some professional advice and they’ll need to run some projections on what is the best route to go. They’ll really not be much in it and corporation tax is due to increase.

Limited companies have other advantages, mainly being limited liability. So if you mess up, your customer would be litigating the company and not you personally.
Click to expand...

I think so to, who would i be looking at speaking to?
 
@David Flett - why not try going through the process on one of those formation websites but not checking out? Just look step by step at what they do.

I was the same, so cautious that I did nothing for months. When I finally made the "jump" I realised there wasn't that much to it. Paying a decent accountant around £100/month is well worth it too. Mine have been an excellent support and I ask them anything and everything - regardless of whether it's related to business finances or not. If they can't answer, they put me in touch with someone who can.
 
Thanks

No harm in having a look ill go do that just now, was it "your company formations"?

Is making it in my wife's name as I mentioned above an idea as it would be fresh/less complications or would it have to be in my name?
 
I don’t know but those sorts of questions are the point where you should stop taking advice from strangers on the internet and start talking to a professional.
 
Yes thats true, its more just advice from people that actually have limited companies and from there point of view I was looking for as I do not know anyone that has one or runs one to ask. Way to start looking properly now!

Yes thats true, its more just advice from people that actually have limited companies and from there point of view I was looking for as I do not know anyone that has one or runs one to ask. Way to start looking properly now!
 
Last edited by a moderator:
If youre planing on taking 700 pounds a month I wouldn't be spening 100 pounds of that on an accountant tbh... Maybe have a look on youtube regarding you're obligations as a LTD company and how to complete your company tax forms as it's not the most complicated thing in the world. The accountant is great for maximising your tax efficiency however as long as you know the basics you can get away with doing it yourself or maybe try and get one to do your yearly accounts for cheap. I'm not a financial expert but do my own accounts for my side business - as soon as you start to get serious cash then it's well worth investing though!
 
David Flett said:
Would it make more sense for my wife to start the limited company then as she doesn't work/ earns zero per year and claims no benefits of any kind? and then she can pay herself and i wouldn't take a wage?
Click to expand...

100% this. It's a very sensible option for people in your position to have wives as directors taking a wage. It could also be beneficial as she could then pay class 2 (i think) NICs which would count towards her state pension eligibility.
 
David Flett said:
Would it make more sense for my wife to start the limited company then as she doesn't work/ earns zero per year and claims no benefits of any kind?
Click to expand...

Rather, you will be able to pay her from the company. But you really need to speak to a professional.
 
As a builder, don't forget insurance, really important in that line of work.

My wife worked as a contractor for a few years but as it was part time and in Marketing (which isn't as well paid as IT) she was below the VAT threshold of £85k and the benefits of an LTD basically balanced out the additional costs. She worked as a sole trader. We did all the accounting stuff ourselves - probably a couple of hours a month to keep on top of it and 1/2 a day to do tax returns at the end of the year.

My wife's sister is a hairdresser, works in a salon a day a week and does stuff herself the rest of the time. She also works as a sole trader but as there's lots of costs (materials, equipment) she has an accountant log and sort everything. Think its online, she scans and sends receipts etc and they sort everything. Not cheap (maybe £100 a month) but its worth it to her for the time she saves.

Also worth thinking about a subscription to an accounting software package like Quickbooks. We didn't bother as it was my wife's time and virtually nothing else (very few expenses etc), but you'll have tools, materials etc and you'll want to keep track of what you're spending as you'll be taxed on profit at the end of the year, not revenue.
 
You must log in or register to reply here.
Back
Top Bottom