Question for UK Ltd Co. owners

[MarkB]

Hiya

If you're in the UK and have an Ltd, and also work fulltime with a dayjob (ie, not your Ltd company), how do you manage the tax situation?

[r2d2]

I am a director of my company, but don't pay myself a wage - so no tax to worry about. (For the moment, obviously some time I will want to take some money out - could either have a wage or pay a dividend then.)

Here's a handy tip though - if you set up a ltd company, you can sell your business to your company for around £8500. You can take this £8500 out of your company over time tax-free because it is below your capital gains tax allowance. An easy way to get a decent chunk out of the profit tax free

[MarkB]

Thanks for the reply. The second half completely baffles me, though. Can you explain it in moron's terms?

[Sean]

I think what he's saying is to sell your websites (which you own) to your company (which you control) in order to get the money out of your company's profits tax free (as opposed to wages etc.).

This might be just restating what he said, but I think it will be a bit more clear.

[r2d2]

Yes, its just a way of getting money out tax free.

If you made £8500 profit in the first year, you pay no corporation tax (under £10000 threshold), but then if you wanted to take that money out, you either have to pay yourself a wage, or pay it out as a dividend - both of which would attract tax.

If you had sold your websites to your company though, you could pay yourself the £8500 profit, and this would come under capital gains tax rules (you built up an asset, then sold it). Since the CGT threshold is about £8700, you get it all tax free. Since the money you receive isn't wages or dividend, it doesnt attract any of those taxes.

Would save you about £2000 or so in tax which isn't bad

[MarkB]

Interesting So, with another point, a Ltd company doesn't pay tax if it earns under £10k? (Obviously you'd still need to file a tax return)

Can you claim things such as magazine subs, hosting, etc?

[r2d2]

That's right: http://www.hmrc.gov.uk/rates/corp.htm

I would think so for the claims, check with an accountant though.

[Hylo]

With a ltd. company ALWAYS go through an accountant and a solicitor as the formal regulations concerning them will get you into serious trouble if you break them e.g. filing your accounts etc.

[Avix]

UK tax is a nightmare, based on my past experience:

I have had a different accountant each year, for the last 4 years. These were not cheap either, each charged between £700 - £1,400 yet every year my accounts go completely wrong and I get fines from the IR for hundreds.

It seems so unfare, I try to do things legally yet get fines... can see why so many people use offshore accounts / cash deals.

[MarkB]

Avix, what areas did they screw up in where you were fined by the IR for?

Thanks for the replies so far, guys.

[Blue Cat Buxton]

I am not sure that UK tax is any more complicated than say the US.

That said, where I work I have seen 'experienced' acountants screw up relitively simple tasks and fines have resulted from that

[Avix]

usually because they have filed things late / not at all.

One accountant went on holiday, then tried to do all the accounts the day before they were due... which led to them not only being late but completely wrong.

I have only met one accountant that seemed to know what he was doing, but I couldnt afford him (he wanted £500 a month).

One useful tip I picked up this year though, is that the inland revenue have advisors who will visit your office and help you out for free. They also have free seminars.

[chromate]

Awch! Sounds like you've had a really bad run of things. Are your accounts unusually complicated for some reason then? Did your accountants have a contract to prepare and submit the accounts for you? If so, surely it wouldn't be hard to take legal action for damages? I'd be seriously annoyed if I was paying someone to do something like that and they screwed it up resulting in a fine.

Have you tried using Sage? I've used it before, and it's great for doing your own accounts on a rolling basis throughout the year. You could do that and then just get your accountant to check it over every quarter or something.

Also, as you rightly say, the IR are extremely helpful if you contact them with a question.