ltd, salary, tax etc

[J.C.E]

I am a limtied/vat reg comp- although it always gets me thinking/confussed!

Basically my accountant set me up to draw a salary of £680 odd so I am below the limit of income tax- I get this

I get a can take a dividence (and so does my mum as a shareholder) - i sort of get that

so does that mean- if I do not increase my salary above £680- i will not pay any income tax at end of tax year- and poss only NI?

obvisouly vat returns every 3 months- I undertstand

I undertstand this will possibly make getting my 1st mortgage a bit more tricky as not all lenders take the figures in a lim company into account and they want to base on a taken salary.

Also where does this put me in 100years time when I am retired and all my money is 'in the company' -how do I 'get my hands on it'

just looking to understand it all a bit more!

Ta

 

[SparkyChick]

As I understand it (I'm setup the same way), you will have to declare the dividends and pay capital gains tax on them. And obviously, if you're paying dividends you'll be needing to pay corporation tax (or whatever it's called) and the a portion of your expected tax bill for the next financial year.

You don't leave all the money in the company, that's what dividends are for... unless you're going to retain it to build a cash surplus for say hiring someone, take out what you don't need and invest it for your retirement... or maybe put down a sizeable deposit on a home

That's my limited understanding I'm yet to get my first years accounts out the way, but I'm dreading next year when it comes time for a tax return etc.

 

[Adj]

Getting a mortgage will be difficult with most lenders because you are in fact an employee (even though it's your company) on a very low salary.
Any money accrued within the company can be drawn down as salary or dividend over the years after retirement but you will pay tax after your standard allowances.
If you're sensible you will also run a sole proprietor non VAT business on the side for domestic jobs - legit of course.

 

[Andy-1960]

If you pay yourself a dividend, you still have to pay tax on the dividend albeit at a slightly lower rate than standard income tax.
As for your second question, you either sell your company or liquidate it.
Btw, how old will you be in 100 years and will you still be bothered about getting your hand on the money! Lol

 

[Octopus]

Getting a mortgage being SE or Ltd is probably as difficult as each other.

I remortgaged recently and our lender needed copies of the SA 20 from HMRC

As for being Ltd. The tax advantages were reduced by George Osborne about 3 years ago

 

[J.C.E]

If you pay yourself a dividend, you still have to pay tax on the dividend albeit at a slightly lower rate than standard income tax.
As for your second question, you either sell your company or liquidate it.
Btw, how old will you be in 100 years and will you still be bothered about getting your hand on the money! Lol

i am only 25 now- so wanted to keep the right side of the law- but keep as much money as I can in my pocket- but also bearing in mind I will want a mortgage within the next year or so

 

[Octopus]

If you want to get a mortgage you need about 3 years made up accounts by your accountant...... and a very big deposit

 

[J.C.E]

3 years- but they should base on the latest years figures
And I am working of the assumption- 10% deposit and a mortgage of 5x my lim com profit as apposed to my salary- and know its tricky this way but not impossible

 

[Octopus]

3 years- but they should base on the latest years figures
And I am working of the assumption- 10% deposit and a mortgage of 5x my lim com profit as apposed to my salary- and know its tricky this way but not impossible

I recommend you go and ask a few lenders ......... being young, having a company for only a couple of years IS going to be held against you.

 

[Leesparkykent]

3 years- but they should base on the latest years figures
And I am working of the assumption- 10% deposit and a mortgage of 5x my lim com profit as apposed to my salary- and know its tricky this way but not impossible

I've sent you a PM mate

 

[J.C.E]

I've sent you a PM mate

see! thats why i have always rated Lee more than you Murdoch!

 

[Octopus]

see! thats why i have always rated Lee more than you Murdoch!

I've no idea what he said in his PM, but what I've put on the open forum is for all to view - theres not much more to add.

I'm working with a builder ATM who can't get a mortgage ........ he has a deposit but his income is too low - I did try and suggest he declared more to HMRC, but he didn't like that suggestion.

 

[derek]

Having just got a mortgage myself I was told that the vast majority of lenders want to see a statement signed by an accountant showing, for a Ltd co, three years of turnover, profit and dividends payments before they will consider lending to a director based on their dividend earnings.

 

[Leesparkykent]

I've no idea what he said in his PM, but what I've put on the open forum is for all to view - theres not much more to add.

I'm working with a builder ATM who can't get a mortgage ........ he has a deposit but his income is too low - I did try and suggest he declared more to HMRC, but he didn't like that suggestion.

All it was mate is how I obtained a morgage with lack of accounts etc many moons ago.

 

[Squid]

For mortgage you usually need 2 years worth of accounts, the tax you pay is corporation tax and usually the minimum in NI contributions.

Speak to your accountant and broker, dependant on where you live s there is a difference between getting approved for a £300k mortgage and a £100k mortgage.

Remember to also maximise your expenses as these come out of the company pre tax deduction so you then pay less less corporation tax, keep all receipts and check your accountant what can be claimed.

 

[Octopus]

We remortaged last month ....... we have over 85% equity in our house ......... they still treated me like a leaper and the misses who works for the NHS had to provide proof of all her hours, extra payments etc....

We got the money , but it was tough. Our borrowings now are 1.5 x our combined incomes

 

[plugsandsparks]

I am Ltd, vat reg, 2 directors/shareholders with two classes of shares to allow an asymmetric dividend payment schedule.
the choice of salary is very important and your accountant will advise.
I am quite old and have significant NI already in the pot, not bothered about benefits if i cannot work etc etc - so i pay myself (for my own personal reasons ) a very small amount and well below the lower earnings limit for NI. As a young person i (check with accountant) suggest you may wish to pay at least just above the lower earnings limit for NI so you build up your contributions for pension and other benefits.
At the end of the year because you have paid yourself so little you will generate (hopefully) a healthy profit. Well 19% of this is due to be paid as corporation tax, the rest is available as dividend or retained profit.
If you decide to withdraw money as dividend you will first use up your remaining personal allowance, then you use up the dividend allowance and finally you start to pay the dividend tax at the appropriate rate which is 7.5% for basic rate tax payers.
Of course if you pay yourself a healthy company pension this is free of both CT and dividend tax.
An accountant will look at the overall situation that is unique to you and your other shareholder and come up with a plan to pay the most appropriate tax, i.e. the lowest legally allowed, you can of course pay more if you are embarrassed by how little tax you pay but thats up to you and your accountant to juggle the moral dilemna.

I am a bit of a geek wrt this stuff and do my own accounts, pension, self assessment etc etc but my own situation is almost unique and will not suit all.
hope this gives a flavour of the possibilities.
cheers P&S

 

[Squid]

We remortaged last month ....... we have over 85% equity in our house ......... they still treated me like a leaper and the misses who works for the NHS had to provide proof of all her hours, extra payments etc....

We got the money , but it was tough. Our borrowings now are 1.5 x our combined incomes

Jeeez a £500k mortgage.......... ;o)))))))

 

[Squid]

I am Ltd, vat reg, 2 directors/shareholders with two classes of shares to allow an asymmetric dividend payment schedule.
the choice of salary is very important and your accountant will advise.
I am quite old and have significant NI already in the pot, not bothered about benefits if i cannot work etc etc - so i pay myself (for my own personal reasons ) a very small amount and well below the lower earnings limit for NI. As a young person i (check with accountant) suggest you may wish to pay at least just above the lower earnings limit for NI so you build up your contributions for pension and other benefits.
At the end of the year because you have paid yourself so little you will generate (hopefully) a healthy profit. Well 19% of this is due to be paid as corporation tax, the rest is available as dividend or retained profit.
If you decide to withdraw money as dividend you will first use up your remaining personal allowance, then you use up the dividend allowance and finally you start to pay the dividend tax at the appropriate rate which is 7.5% for basic rate tax payers.
Of course if you pay yourself a healthy company pension this is free of both CT and dividend tax.
An accountant will look at the overall situation that is unique to you and your other shareholder and come up with a plan to pay the most appropriate tax, i.e. the lowest legally allowed, you can of course pay more if you are embarrassed by how little tax you pay but thats up to you and your accountant to juggle the moral dilemna.

I am a bit of a geek wrt this stuff and do my own accounts, pension, self assessment etc etc but my own situation is almost unique and will not suit all.
hope this gives a flavour of the possibilities.
cheers P&S

As above but my accountant issued 12 shares one for every month and did a rolling calculation with income and expenses I had a DD setup for the minimum salary then I would be informed of how much I could transfer from the business to my personal account in expenses and dividends, the expenses aren't taxable so i claimed for travel, breakfast and lunch, you need a printer/computer for business use expense it stationary and stamps stock up before Christmas expense it Christmas cards as well, I even claimed for a Christmas tree and a couple of bikes over the years.

 

[Squid]

Forgot to add an office in your house allows you a % to claim for bills, cleaner, window cleaner.