Starting a Limited Company
Incorporating your business is a complex procedure and should always be done with the advice of a solicitor or an accountant.
Recent tax changes have made it even more important to consider whether it is best to trade as a Limited Company.
We are regularly asked, ‘Should I incorporate my business?’ The reality is that there is no easy answer. Each situation has to be judged individually. As well as the obvious issues of tax and national insurance contributions (NICs), there are many other factors, such as:
- The business
- Growth rates of the business
- Commercial risk
- Your personal preferences
- Pensions and retirement planning
Advantages of incorporation
- Incorporation normally provides limited liability. If a shareholder has paid fully for his or her shares, he or she cannot normally be required to invest any more in the company.
- A company has its own legal status – it can own property and sue and be sued.
- You could save a considerable amount in tax!
If you are transferring an unincorporated business we can
- Carry out a tax planning review to ensure the most tax efficient transfer to your Limited Company can be ensured.
- If appropriate, value your existing business for the purposes of establishing a goodwill figure in your new Limited Company that can be ‘drawn’ down tax free and save future corporation tax and agree this valuation with the Revenue Valuations Office
- Transfer an existing VAT number
- Ensure all appropriate tax elections are made
- Draw up a contract of purchase and sale including a ‘Right to Vary’ clause to ensure that any future Revenue enquiry does not result in the transfer ‘price’ being deemed as a taxable distribution.
- Set up a new company using our reliable formation agent
- Amend the year end date of the company to suit you and cash flow for tax purposes
- Open a PAYE scheme for the new company in case it is required
- Advise you on the most tax efficient level of remuneration based on your requirements and the latest tax legislation
- Prepare cessation accounts for the old business.
There are many ways to treat the proceeds of incorporation (shares, cash or director loan account credit) and there are various tax reliefs that can be elected (some of which are quite restrictive and hard to achieve in practice). The simplest and most efficient transfer can be achieved as follows.
Goodwill will be transferred to the company for the proceeds of sale. The company will pay you these proceeds by crediting your director’s account and you will be able to draw this amount down tax free when needed. This method will also establish a goodwill figure in the balance sheet- this can be written off over a suitable period and corporation tax relief obtained in the process.
There are methods by which the gain can be deferred but this would in turn reduce the future tax relief available to the company. We will need, in due course, to file an election to disapply certain automatic tax mechanisms.
As a self employed person you pay a regular amount of Class 2 National Insurance (currently £2.75 per week) and you also pay Class 4 National Insurance at a rate of 9% on your profits.
As an employee of your new company, the National Insurance regime is different. You will no longer have to pay Class 2 or Class 4 National Insurance. However, Class 1 National Insurance is due on any salary drawn. Basically (ignoring any thresholds) you, as an employee, would suffer employee National Insurance at 12% and the company would also have to pay 13.8% employer National Insurance. However, the remuneration package could be structured as such that your salary levels are below the thresholds for paying National Insurance.
As an employee of the Company you would still have to pay Income Tax. Income Tax and National Insurance would be due on any salary drawn (via the PAYE system). As an entirely salary remunerated person you would not have to worry about budgeting for Income Tax as the amounts due would be automatically deducted from your salary before you receive it. The Company would be responsible for paying over the PAYE and National Insurance each month to the Revenue.
Income Tax and Corporation Tax
However, if you are remunerated by way of dividends, these have to be reported on your self-assessment return and any Income Tax due would be payable under the self-assessment system outlined above – requiring the need for regular budgeting on your part. The Income Tax due would be lower than the amount you are budgeting for at the moment as Income Tax rates are lower for dividends, and an element of the Income Tax is deducted at source by the company.
Our core business start up services include
- Review meeting to talk about Business structure – Decide on the best structure of your business: sole trader, partnership, limited liability partnership, or limited company.- we charge £150+ vat for this but will redeem this against our company formation charge if you become a limited company
- Company formation – To Set up a limited company or LLP we charge £250+ vat and to carry out company secretarial duties if you go down a limited route we charge £200+ vat per annum.
- Notifying the authorities – Register your new business with Companies House of limited and HMRC whether self employed or limited.included in our prices above
- Raising finance and business plans – Prepare cash flow projections and assess your finance needs.Business planning – Look at your business, its potential, the main challenges you will face and outline a plan of action. Cash Flow Projection – our fee £250+vat . Financial business plan – £500+ vat
- Tax planning – Advise you on the areas of tax planning we feel are likely to be of most importance to you from the start. Our fees are all shown in tax saving section- we would highlight relevant options.
- Accounting Systems – Advise on what best suits your needs. This includes Bookkeeping, Payroll and VAT. We offer Kashflow Online free of charge if we are doing your accounts. We don’t charge for advice but will charge £150+ vat for training + £150+ vat if you want us to set everything up. PAYE set up is £75+ vat,Vat registration – £125+ vat