[TimC38]

Hi,

I have setup a ltd company to go with my t-shirt business - I am looking for some advice on how to handle UK Tax etc. I have been advised many things from don’t pay yourself a salary only divides, buy in higher volume if you have extra money, at the end of the tax year, to save on both tax and the item etc.

I was wandering if anyone in the industry could give me some advice on this. On what to do and not do.

Thanks.

 

[TeedUp]

Not that you might not get some good answers here, but there must be many small business forums specific to the UK that would be great resources, most of those types of questions are not so industry specific.

 

[TABOB]

I have been advised many things from don’t pay yourself a salary only divides

Examples:
If you make £500,000 annual profit as an employee, you will pay £229,571 (tax bands +NIC) AND the company will also pay £73,880 (10% employers NIC).
If you make £500,000 annual profit as a self employed person, you will pay 228,672 (paye tax bands +NIC)
If you make £500,000 annual profit as limited company, you will pay £95,000 (19% company tax).
If you have £500,000 annual investment income (dividents), you will pay £178,750 (dividend tax bands).

buy in higher volume if you have extra money, at the end of the tax year, to save on both tax and the item etc.

Let's say the company has net revenue of £500,000 and will have to pay £95,000 in tax (19% company tax).
If you buy £300,000 in materials the net revenue will be reduced to £200,000 and the tax will be £38,000.
You basically bought £57,000 more in materials instead of paying them as tax.

If you take all the revenue out as dividend the difference is even bigger (£60,700 tax instead of £178,750).
That's £118,000 more in materials instead of paying them as tax.

 

[TimC38]

Thanks for this BOB! Any other tips or suggestions?

The other factor I want to be careful about is not over complicating things, which is one of the reasons I do not want to pay myself as an employee. I am told Accountants will charge a lot more for this than simple small business accounts and dividends.

 

[Antiquert]

Thank you, Bob, for a great explanation. I’m a person who’s never been involved in any business affair and perfectly understood your message. I wish all the complex financial stuff could be explained like this to me.
I want to start a small company in the UK, and I also need to know as much as possible about taxation and the connected laws. It’s a long learning process, but I really want to be well aware of all the opportunities I have before starting my own company. I also want to consult various business valuation services before deciding the loan size I need.
I think there should be more resources for people like me because many are afraid to run a business because they don’t know how to do it. The country would have much more successful companies if more business and finance education were available for everyone.