Becoming a director part way through year

What effect does this have on income tax and ni if previously paid via employer?

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My husband is being made redudant on 28th August and plans to set up a ltd company on the following Monday (31st August). As he was previously employed and already reached his personal allowance for the year via his PAYE from previous employer, does this mean that he shouldn't take ANY salary from the ltd company and instead just take dividends until April 2021?

Am I correct that the first £2000 of dividends would be tax free? But if his previous income is over £12,500 (personal allowance) + £2000 does this mean it would not be tax free anymore or is it a completely seperate thing?

And how does national insurance work out with switching?

Anything else I need to be aware of for switching part way through the year?

Any help very much appreciated as I can't seem to find the answer anywhere online!

Replies (10)

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Scalloway Castle
By scalloway
22nd Jul 2020 21:11

You can only take dividends from a limited company if there is profit available.

If he has not appointed an accountant for the company I recommend that he does so immediately. This is the kind of situation where an accountant can sit and work out a bespoke solution.

Thanks (1)
Replying to scalloway:
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By Caroline Beadle
22nd Jul 2020 22:03

Thanks for the reply. Taking on an accountant will definitely be one of the first steps - I am just trying to gather as much info to see if becoming ltd is the way to go or if he should push instead for employment elsewhere.

So assuming profits are for example £4000 per month from month 1, what would that mean for all my questions in original post?

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Replying to Caroline Beadle:
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By bernard michael
23rd Jul 2020 09:20

Quote:

Thanks for the reply. Taking on an accountant will definitely be one of the first steps - I am just trying to gather as much info to see if becoming ltd is the way to go or if he should push instead for employment elsewhere.

So assuming profits are for example £4000 per month from month 1, what would that mean for all my questions in original post?


Is that the profit after Corporation Tax??
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Replying to bernard michael:
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By Caroline Beadle
24th Jul 2020 11:05

Yes and expenses . But this assumes no salary is taken as he has hit personal allowance already from previous employment - but not sure if that is correct to do? Thanks

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Replying to bernard michael:
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By Caroline Beadle
24th Jul 2020 11:05

Yes and expenses . But this assumes no salary is taken as he has hit personal allowance already from previous employment - but not sure if that is correct to do? Thanks

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Replying to bernard michael:
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By Caroline Beadle
24th Jul 2020 11:05

Quote:

Quote:

Thanks for the reply. Taking on an accountant will definitely be one of the first steps - I am just trying to gather as much info to see if becoming ltd is the way to go or if he should push instead for employment elsewhere.

So assuming profits are for example £4000 per month from month 1, what would that mean for all my questions in original post?

Is that the profit after Corporation Tax??

Yes and expenses . But this assumes no salary is taken as he has hit personal allowance already from previous employment - but not sure if that is correct to do? Thanks

Thanks (0)
Replying to Caroline Beadle:
Scalloway Castle
By scalloway
24th Jul 2020 11:38

The personal alowance is prorated month by month. Do you mean he has been paid more than £12,500 to date?

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By SXGuy
22nd Jul 2020 21:21

If you contact an accountant. They will have plenty of answers for you. And may save you a balls up down the line.

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By k3lly89
22nd Jul 2020 21:53

It may be worth still paying a salary because of tax breaks in the Ltd company, but it all depends on other income as to whether it is worth it.

NI for employees is assessed per employment, not on an annual basis like tax.

But agree with the below, if you haven't already you should be finding an accountant to look after your Ltd Co affairs as they will have the answers you need which are tailored to your husband and the business.

Thanks (2)
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By Tax Dragon
23rd Jul 2020 09:30

On those facts.... don't forget IR35.

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