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Limited company, vat reg and dividends.

Dave Shaw

Well-known member
Messages
679
Location
Westhoughton
Does any one know if you can be a limited company without being vat registered and also if you are a limited company and after corporation tax and paying yourself a basic wage, is there any caps on dividends and are they tax free?

I’m looking at different ways of expanding whilst paying the government as least as possible but still staying on the right side of the law.

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Vat is 84k income I think, if you are below that you don’t have to be vat registered

How does the dividend allowance work in practice?

Here is an example of how the dividend allowance works for a limited company owner drawing down a £11,850 salary and £60,000 dividends during the 2018/19 tax year. You can input your own salary / dividend mix into our dividend tax calculator.

The £11,850 salary takes up the entire 2018/19 personal allowance.
The first £2,000 of dividends is included within the dividend allowance.
The next £32,500 of dividends are taxed at 7.5% (basic rate) = £2,437.50.
The remaining £25,500 dividends are taxed at 32.5% (higher rate) = £8,287.50.
The total dividend tax liability is £10,725.
Notice how the £2,000 dividend allowance is tax-free, but still takes up £2,000 of your basic rate tax band (£0-£34,500 during 2018-19).


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Link too the calculator, it’s for it contracting but works the same.

https://www.itcontracting.com/calculators/dividend-tax-calculator-2018-19/


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I have just gone ltd and will be paying myself and my partner £8500 per year which is tax free and also your ni contributions gets paid for you.

This allows us both to take a further 5k a year each tax free as dividends.

Have you had a chat with an accountant as of yet as it's worth doing for an hour as they will tell you what is best

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I have ran Limited Companies that were VAT rated and most of your questions have been answered. My advice is speak to an Accountant and my opinion is stay as a sole trader. The tax advantages of being Limited are currently greatly reduced, and again in my opinion, the extra paperwork and red tape is just not worth the few quid you might save. 

 
I looked into all this a few months ago.

Generally speaking the grand or so you will save in tax and n.i would be wiped out by accounting fees . 

There's not much in it but there are other reasons to go ltd.

 
I have just gone ltd and will be paying myself and my partner £8500 per year which is tax free and also your ni contributions gets paid for you.

This allows us both to take a further 5k a year each tax free as dividends.

Have you had a chat with an accountant as of yet as it's worth doing for an hour as they will tell you what is best

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That sounds good £1150 each per month so £2300 a month combined. Any couple should be able to live on that and build the company.

 
Once turn over is above £30k it becomes beneficial to be Ltd.  Call a good accountant and take the free 30 min consult they offer. Well worth it. 
Is it only beneficial if your vat registered as well? All small businesses that I’ve spoken to for advise have told me the same thing and that was to stay well away from being vat reg unless you know your gonna be massive with hundreds of employees say.


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No dave, it becomes beneficial when the figures add up.

So you need to calculate corporation tax, dividends, accountant fees etc vs soll trader expenses. The way certian things go through the books are different

When i looked into it an accountant (free 1 hour) drew up a comparison for me.

I think the turnover was based on about 40k and it was about a grand better off LTD, but that wasnt including the extra fees to go ltd. There wasnt a lot into so i didnt think it was worth it.

But theres other reasons to go LTD that are not just financial

You really need to see an accountant to base it on your personal circumstances and goals, asking whats best is a bit of an "it depends" type question.

 
Last edited by a moderator:
Consider the facts, at £85k you pay VAT on turnover, just 2 vans not working hard at all can do £85k easy -- once VAT registered you need to be at about £140K to start seeing true benefit and profits.  

HOWEVER last budget was rumblings of dropping the VAT levels to £25k  -- Our current £85k is one of the highest thresholds in the world.  The VAT threshold will drop now the rumblings are out there so is it not better to prepare for the future than to stay wheeling and dealing in the past.  

Adams case is an interesting example, he's tried the employee route, not for him, so seems he's going back to lone wolf, so my tips to him would be keep the cream and sell off the chaff and keep adding and replacing with better quality.  

However once you're at a stage where you have a full time employee on the books the paperwork for adding another really does not over complicate the situation, I don't see the point of trying to stay small.   You need an employee to cover you when you need some time off on the sick or just taking a break, so from one why not add another and so on.  

Sure it means add another van etc each time but the profits from the employee should more than cover that.  

Now the part that isn't intended to sound disrespectful @DaveShaw but if you're parking up at the chippy at 4.30 then walking the beat to collect in the days takings you're really not in a position to be ready for VAT thresholds etc.  

In a previous thread you said your doing £250 a day (I think it was) on £5 and £6 jobs so that averages 50 jobs a day to make £250.  When VAT registered every customer must be given a receipt with VAT on it (even if it only says WIndows Cleaned £5 including VAT) SO by that logic you're looking at having to do 1416 cleans a month at £5 a pop, and deal with 1416 individual records of collections ect.  

I don't think the price you said was as low as I put above but you get the idea.  

I was chatting to a girl in the cafe today where I grab my morning cuppa and talking about the end of year books......   she tells me there's a chap called chris that goes there for breakfast daily, bragging about not having paid tax since 1992.  HMRC caught up with him.  £250'000 fine plus expenses, charges, interest ect and on top of that he's had to hire an accountant to try and help him out and that's cost him £15'k already.   Probably gonna lose his house and a few other assets.  

How I see it is stay as a sole trader and stay small with perhaps you and one lad and make sure you dont go near VAT turnover or start running it a growing company and expand as and when needed.   

Something to ponder however, lets say you grow with one helper to say £70K per year and you roll along happy on that for a couple of years then HMRC drop the bombshell that the threshold is coming down to £25K to fall in line with most of the rest of the world.  What do you do then?

 
Trying to plan on rumours is madness. IF VAT threshold changes then virtually every legitimate window cleaner will have to become VAT registered and it then becomes a leveller playing field. 

Some people are happy earning £40k a year net, without having the hassle of employing. Each to their own and there's no right or wrong in this conversation. 

 
Consider the facts, at £85k you pay VAT on turnover, just 2 vans not working hard at all can do £85k easy -- once VAT registered you need to be at about £140K to start seeing true benefit and profits.  

HOWEVER last budget was rumblings of dropping the VAT levels to £25k  -- Our current £85k is one of the highest thresholds in the world.  The VAT threshold will drop now the rumblings are out there so is it not better to prepare for the future than to stay wheeling and dealing in the past.  

Adams case is an interesting example, he's tried the employee route, not for him, so seems he's going back to lone wolf, so my tips to him would be keep the cream and sell off the chaff and keep adding and replacing with better quality.  

However once you're at a stage where you have a full time employee on the books the paperwork for adding another really does not over complicate the situation, I don't see the point of trying to stay small.   You need an employee to cover you when you need some time off on the sick or just taking a break, so from one why not add another and so on.  

Sure it means add another van etc each time but the profits from the employee should more than cover that.  

Now the part that isn't intended to sound disrespectful @DaveShaw but if you're parking up at the chippy at 4.30 then walking the beat to collect in the days takings you're really not in a position to be ready for VAT thresholds etc.  

In a previous thread you said your doing £250 a day (I think it was) on £5 and £6 jobs so that averages 50 jobs a day to make £250.  When VAT registered every customer must be given a receipt with VAT on it (even if it only says WIndows Cleaned £5 including VAT) SO by that logic you're looking at having to do 1416 cleans a month at £5 a pop, and deal with 1416 individual records of collections ect.  

I don't think the price you said was as low as I put above but you get the idea.  

I was chatting to a girl in the cafe today where I grab my morning cuppa and talking about the end of year books......   she tells me there's a chap called chris that goes there for breakfast daily, bragging about not having paid tax since 1992.  HMRC caught up with him.  £250'000 fine plus expenses, charges, interest ect and on top of that he's had to hire an accountant to try and help him out and that's cost him £15'k already.   Probably gonna lose his house and a few other assets.  

How I see it is stay as a sole trader and stay small with perhaps you and one lad and make sure you dont go near VAT turnover or start running it a growing company and expand as and when needed.   

Something to ponder however, lets say you grow with one helper to say £70K per year and you roll along happy on that for a couple of years then HMRC drop the bombshell that the threshold is coming down to £25K to fall in line with most of the rest of the world.  What do you do then?






If hmrc lowerd the vat level to 25k they would never have the staff to implement it and work it all out , like a lot of things I doubt will come in but if it does will worry about it then no point it getting stressed about it now 

 
Consider the facts, at £85k you pay VAT on turnover, just 2 vans not working hard at all can do £85k easy -- once VAT registered you need to be at about £140K to start seeing true benefit and profits.  
 
HOWEVER last budget was rumblings of dropping the VAT levels to £25k  -- Our current £85k is one of the highest thresholds in the world.  The VAT threshold will drop now the rumblings are out there so is it not better to prepare for the future than to stay wheeling and dealing in the past.  
 
Adams case is an interesting example, he's tried the employee route, not for him, so seems he's going back to lone wolf, so my tips to him would be keep the cream and sell off the chaff and keep adding and replacing with better quality.  
 
However once you're at a stage where you have a full time employee on the books the paperwork for adding another really does not over complicate the situation, I don't see the point of trying to stay small.   You need an employee to cover you when you need some time off on the sick or just taking a break, so from one why not add another and so on.  
 
Sure it means add another van etc each time but the profits from the employee should more than cover that.  
 
Now the part that isn't intended to sound disrespectful [mention=5847]DaveShaw[/mention] but if you're parking up at the chippy at 4.30 then walking the beat to collect in the days takings you're really not in a position to be ready for VAT thresholds etc.  
 
In a previous thread you said your doing £250 a day (I think it was) on £5 and £6 jobs so that averages 50 jobs a day to make £250.  When VAT registered every customer must be given a receipt with VAT on it (even if it only says WIndows Cleaned £5 including VAT) SO by that logic you're looking at having to do 1416 cleans a month at £5 a pop, and deal with 1416 individual records of collections ect.  
 
I don't think the price you said was as low as I put above but you get the idea.  
 
I was chatting to a girl in the cafe today where I grab my morning cuppa and talking about the end of year books......   she tells me there's a chap called chris that goes there for breakfast daily, bragging about not having paid tax since 1992.  HMRC caught up with him.  £250'000 fine plus expenses, charges, interest ect and on top of that he's had to hire an accountant to try and help him out and that's cost him £15'k already.   Probably gonna lose his house and a few other assets.  
 
How I see it is stay as a sole trader and stay small with perhaps you and one lad and make sure you dont go near VAT turnover or start running it a growing company and expand as and when needed.   
 
Something to ponder however, lets say you grow with one helper to say £70K per year and you roll along happy on that for a couple of years then HMRC drop the bombshell that the threshold is coming down to £25K to fall in line with most of the rest of the world.  What do you do then?
Bloody hell thats some fine!!!
Good luck to em tryin to get that back. If he ain’t been payin tax then he won’t have been able to get a mortgage so it’s very unlikely he will have any other assets worth that amount.


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Bloody hell thats some fine!!!
Good luck to em tryin to get that back. If he ain’t been payin tax then he won’t have been able to get a mortgage so it’s very unlikely he will have any other assets worth that amount.


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You may be too young to remember but in the 80s and 90s you got a mortgage by asking for one.   They were handed out candy. 

 
I think the taxman can go back 7 years and you have to prove you have not been earning it. If they know you have a mortgage free house then they will come after anyone because they know the asset, money is there. My mate works on the rigs and has his own company. They all got in toe with a Cheap Accountant (Try not to laugh) who did their vat or tax returns. It was going great till a letter from the inland revenue arrived on his doorstep demanding £14k be paid at once. Apparently the cheap accountant wasn't paying the taxman and keeping their money. He told me that he can't even sue because there is no governing body there to sue.

But they all should have known something wasn't right when they were told the phrase, Cheap Accountant. Everyone knows there is no such thing, well nearly everyone. :1f602:

 

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