Ltd Company tax question

[Greebo]

There are very little benefits these days for typical contractors being LTD. The financial benefits get smaller every year and depending on what you are doing and how many customers you have there is the risk of IR35. The flat rate VAT is virtually pointless as you make about £10 in every £10k it really is miniscule.

As a contractor through a limited company you need to organise your own pension and make provisions for times you cant work (sickness / holiday / out of contract). There are still some benefits, but they are nowhere near what they used to be compared to 10 years ago.

depends on the contractor. My gf fell into one where she could claim a decent percentage as a flat rate. I did a quick calculation and even if she kept every receipt for everything she wouldnt even come close to that much VAT. That meant about 3-4% vat gain on a turnover of over £100k so over £3k per annum for her for free. Plus she didnt need to keep any of her receipts for the VAT inspections either.

Plus a lot depends on your rates. My gf was earning substantially more per day than she ever did through PAYE to cover pension, holidays & sickness

 

[EyeDot]

Yep. The primary benefit these days, now that dividend tax/allowances and flat rate VAT have been changed is that you basically will just earn more than someone PAYE and have the flexibility to manage your own time off and pension contributions.

I feel some are overlooking the benefits of legitimate expense reclaims:

Off the top of my head.

ADSL
Mobile
IT Equipment (laptop / phones / iPads) (VAT rebate even for FRS if handled correctly)

Potentially thousands of £ of savings there also.

Yes, its a lot less than it used to be (and rightly so, some (most) PS company directors were taking the proverbial, however it still has many uses.)

 

[weringo]

Is the above correct or am I missing something ?

You're also forgetting the 13.8% employers NI the employer will be saving if they pay you via Ltd co rather than through PAYE. If you're savvy you can negotiate this saving into your remuneration.

 

[Maccapacca]

Residential cleaning company then a decent little van and all fuel and servicing paid for by the company. Claim all the vat back and pay for it on the company side.

Nice five seater vans about.

 

[Maccy]

Incorrectly portrayed.

As a cleaner he charges 20%, and pays back 11% (1% discount first year) then 12% the following years, of the TOTAL amount (including VAT) not the Net amount.

ie

£10,000 bill.
He charges £12,000 to the client (£10,000 plus £2,000 VAT)
He then pays 11% of the £12,000 (£1,320) to HMRC and pockets £680 profit on the VAT (minus the cost of paying his accountant)

List of the VAT rates here.

You'll also have to leave the scheme if you exceed £230,000 turnover.
There are also new hurdles you have to pass around being a "limited cost business" which your accountant can help you with.

Apologies, yes, it depends what line of business he's in.

 

[VincentHanna]

As he said though, that's a 20% increase for his customers and they won't be able to claim that back.

 

[Greebo]

As he said though, that's a 20% increase for his customers and they won't be able to claim that back.

Again depends on your business. If all your customers are private individuals then normally its advisable to avoid become VAT registered. In my GF case, all her customers were businesses so made no difference to them whether she was vat registered or not.

 

[Greebo]

Currently on the flat rate VAT scheme and agree it almost pointless now, used to be a nice little earner but not so much these days making just £26 for every £1K you charge.

For one thing thats still £2,600 saved if you turnover over £100k. Not an insignificant amount.

Secondly not sure you can say its just £26 for every £1k you charge as purely depends on the business you are in.

The category my gf fell meant she had to 11% in the first year and then 12% afterwards. So for example say she was charging £100,000 plus VAT per year she would have £13,200 to pay over the VAT man each year out of the £20,000 of vat she has charged.

She only had around £10,000 of vatable supplies so under the normal VAT scheme she would have £18,000 to pay over so she was £4,800 better off in the first year.

Of course, i have another friend in business who when looking at his supplier invoices he would actually pay more VAT to HMRC under the flat scheme compared with claiming the vat on his purchases so wasnt worth him swapping.

 

[VincentHanna]

Yeah, flatrate scheme is crap now IMO

We moved back to standard 20%

 

[GSXRMovistar]

For one thing thats still £2,600 saved if you turnover over £100k. Not an insignificant amount.

In the scale of things I consider it to be when this generates HMRC £17.4k by doing absolutely nothing.

Secondly not sure you can say its just £26 for every £1k you charge as purely depends on the business you are in.

Obviously depends on the business you are in yeah, but my post was commenting on my own context so its 14.5%.

 

[Greebo]

Fair enough then if that was specific to you. Like I said, with all things, whether you are batter or worse off limited or vat registered will totally depend on the person circumstances and business. Which is why its always worth taking professional advice and not to just do it because you know somebody else who has done it.

 

[Bluecube]

Again depends on your business. If all your customers are private individuals then normally its advisable to avoid become VAT registered. In my GF case, all her customers were businesses so made no difference to them whether she was vat registered or not.

For the record, yes, this is the problem I’m facing in that the vast majority of my customers (98% almost!) are private individuals.

 

[MikeTimbers]

For the record, yes, this is the problem I’m facing in that the vast majority of my customers (98% almost!) are private individuals.

Aren't many of them then paying in cash?

 

[Bluecube]

This is the 21st century. Just about everyone pays by bank transfer or some form of online payment. Hardly anyone even holds cash these days.

 

[CryptKeeper]

Don't forget pensions too. You can pay up to £40k per year tax free into a SIPP. This comes out of pre-tax company profits, so you don't suffer corporation tax on it.

On the flip side, you need to pay for an accountant to help you (most likely) and you'll have a few other minor operating costs.

As others have said, being able to expense certain costs can be very beneficial too.

Once you do run a Ltd company, you'll most likely never vote Labour again either

 

[Maccapacca]

Once you do run a Ltd company, you'll most likely never vote Labour again either

This is very true

 

[GSXRMovistar]

This is very true

Hahaha so very true!

 

[edscdk]

Also married couples could both be directors of a ltd company, so the tax allowance can be split even further between them.

Can confirm my wife is director of my company so i paid her 5k divi last year plus ( her normal job did not pay much) enough to top her salery upto the 10 or 11k.... Not sure she had to be a director I think it relates to shares (I set it up wrong and gave her 99 shares and me 1 but the accountant just issued some other type of share so we can take the same dividend)