My company currently:
- is an LLP
- has 2 partners (me and my father)
- designs and sells advertising in free local magazines
We are considering becoming a Limited Company, as I will soon be running the business on my own, and wont be able to remain an LLP. I have also tried tax calculators that indicate I would make tax savings as a Limited company.
I have been reading about how I can pay myself as a director of a company and have come across IR35 and the Employment Allowance, but am unsure how relevant they are to us.
If we became a Limited company:
- Can I take my £11,000 tax free allowance as a PAYE salary and avoid paying employers NI under the the Employment Allowance?
...or am I not eligible for the Employment Allowance? (ie. am I service company?)
- Can I take the remaining profits (corporation taxable at 20%) as dividends and pay 7.5% tax on everything over £5,000?
...or do I fall within IR35?
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Replies (12)
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If you don't have an accountant already you will need one when you set up the Ltd Company. They would be able to advise if this would be the optimal structure going forward, how to sell any assets/goodwill and how to extract the profits tax efficiently.
No the company would not be entitled to the employment allowance since it does not apply to sole Director payrolls from 6 April and I don't see the relevance of IR35 but again, if you give all the facts to your accountant, they will be able to advise.
Thanks Matrix
I have thought about getting an accountant, or at least to get me setup as a Ltd company.
Based on what I have read, I thought as much about the Employment Allowance.
I've only just heard about IR35, but from what I understand it is to prevent employees of one company (who aren't directors) from taking their salary as another Ltd. company (more tax efficiently). Therefore I would expect this won't apply, as we are a company selling a service to lots of small businesses, in no way contracted or employed to work for them as part of their companies.
If we were to fall outside IR35, am I right to expect that would allow company directors to take as much of the profits as they wish as dividends, opposed to salaries?
Father
What's happening to your father ?
Is he retiring or will he work for the new company ?
You seem to be unclear about how a company works and would benefit from some professional advice. In particular "you" and "the company" are separate legal persons. Which is different from a partnership, unless you're in Scotland.
My father will be retiring.
Sorry if I am not very clear. I am aware that a company is a separate "person" from myself.
I will probably take some professional advice closer to the time of registration of the new company, but was just looking for some advanced clarification on things, like IR35, so I am aware of what the tax situation will be, for example with dividends (and if there is a maximum allowable) and salary.
Maximum Dividend
It's not so much a maximum dividend that's the problem as the minimum salary.
OK, so is a sole director taking an £11,000 salary with £25,000 in dividends unreasonable?
I am aware that you cannot take more in dividends than there is profit.
Way of the world
Whether or not it's reasonable, that seems to be what happens.
However, if you're an IR35 company, the minimum salary may be more than £11000 (in fact, almost certainly will be) and that's where you need to take advice. It's a complex area.
PCG
I advise that you become a memer of the Professional Contractors Group (or any similar contractor specific organisation), as a member I expect there will be links to recommended accountants who fully understand IR35.
http://www.contractorcalculator.co.uk/PCG.aspx
on the very limited details given
I cannot see how IR35 would apply in this situation.
Therefore, i don't believe a dedicated 'contractor' accountant would necessarily be the best option.
Business of the company, "designs and sells advertising in free local magazines".
I assume that this is varied clients and that the engagement for each is of a sporadic nature given the business. As such, I don't see how this could be considered a PSC or that IR35 would apply. Only if the company is simply an intermediary for work done for the same end client on terms dictated by that end client might there be an issue.
Thanks for the responses
Many thanks to everyone for their responses.
I had only done some initial reading about IR35, but you have confirmed my suspicions that I would be outside IR35.
thank you
for taking the time to come back and say thanks.
Something which is not done very often these days!