I completed my first month of contracting under the banner of my Limited Company in March, for which I invoiced £9k+VAT.
This is my only taxable income for the 2006/7 financial year as the rest of my income was earned overseas for which I qualify as non-resident.
So...what would you do?
The most tax efficient option would appear to be as follows:
Pay myself salary of £5,035 and then a dividend of £3,965 on which my company would pay Corp Tax but I would not pay any personal tax...
However, this would mean I make no NI contribution for the year and does it also indicate that in the financial year 2007/8 I should be paying myself a salary of £5k per month?
My business plan (done in March last year prior to me incorporating in April last year) states that I would pay myself a salary of £1k per month for the first 2 years of trading...and my personal savings and any earnings outside of the company would suppliment this...should I therefore do a Director Loan and pay myself a one-off payment of £12K? Would this support me on any IR35 investigation going forward as it is evidence that I have a proper salary structure in place in accordance with a business plan? (I know this is an un-known and I don't want this to turn into an IR35 debate, just wondered what your thoughts were?)...also, whilst this may not seem like a very tax efficient way of doing things, it is probably better than it seems. In terms of 2006/7 fin year I would pay more tax, because in the 2007/8 fin year I will be into the higher tax bracket on divi payments, the return of loan will not be taxable (not sure I've explained this very well and not being a mathematical person I'm not sure it makes any sense either, so tell me if I am talking rubbish!)...
I have genuine business expansion plans for the next 2 years and am therefore taking my Limited very seriously, it is not just a tax efficiency tool. However, as with any company director, I have a responsibility to my shareholders (my children whom I hope to take over the company later on) to run the business as efficiently and cost effectivelyas possible.
So...back to the original question...what would you do?
I have an excellent accountant (Darren from 1st Accountancy who has already saved me a huge amount of money through some knowledge that no other accountant I've spoken to had) so interms of legitimacy and processing of anything I don't need any advice there...but I am hoping for some experienced contractor advice as you guys are the ones with experience of running your own businesses.
Cheers
This is my only taxable income for the 2006/7 financial year as the rest of my income was earned overseas for which I qualify as non-resident.
So...what would you do?
The most tax efficient option would appear to be as follows:
Pay myself salary of £5,035 and then a dividend of £3,965 on which my company would pay Corp Tax but I would not pay any personal tax...
However, this would mean I make no NI contribution for the year and does it also indicate that in the financial year 2007/8 I should be paying myself a salary of £5k per month?
My business plan (done in March last year prior to me incorporating in April last year) states that I would pay myself a salary of £1k per month for the first 2 years of trading...and my personal savings and any earnings outside of the company would suppliment this...should I therefore do a Director Loan and pay myself a one-off payment of £12K? Would this support me on any IR35 investigation going forward as it is evidence that I have a proper salary structure in place in accordance with a business plan? (I know this is an un-known and I don't want this to turn into an IR35 debate, just wondered what your thoughts were?)...also, whilst this may not seem like a very tax efficient way of doing things, it is probably better than it seems. In terms of 2006/7 fin year I would pay more tax, because in the 2007/8 fin year I will be into the higher tax bracket on divi payments, the return of loan will not be taxable (not sure I've explained this very well and not being a mathematical person I'm not sure it makes any sense either, so tell me if I am talking rubbish!)...
I have genuine business expansion plans for the next 2 years and am therefore taking my Limited very seriously, it is not just a tax efficiency tool. However, as with any company director, I have a responsibility to my shareholders (my children whom I hope to take over the company later on) to run the business as efficiently and cost effectivelyas possible.
So...back to the original question...what would you do?
I have an excellent accountant (Darren from 1st Accountancy who has already saved me a huge amount of money through some knowledge that no other accountant I've spoken to had) so interms of legitimacy and processing of anything I don't need any advice there...but I am hoping for some experienced contractor advice as you guys are the ones with experience of running your own businesses.
Cheers
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