Questions about LTD co!

[mlc2009]

Hi All,
I'm a sole trader and I run online website which generate a large amount of cash (£200k+ yearly profit) I have been told to go to a ltd company, as it makes things easier. I have a few questions,

1/ When I pay myself a dividend, do I still have to pay the tax myself on this? for eg : I give myself a £80k dividend, do I have to hold back a percentage in a savings account to pay tax at end of year? Like payments on account

2/ I understand most business accounts have a limit of paying £30k daily using faster payments afaik ( at least with Barclays it does ) If I pay myself a large dividend, is there a way around this?

3/ I sell advertisement space to companies in USA, so this is outside the scope of VAT. do I still need to register for vat?

many thanks

[Clare@InTouch]

1 - There is still tax on dividends if they are higher rate. As a rough guide if you take a salary of £12,000 and dividends of £27,000 then there will be no tax to pay. Any dividend in excess of £27,000 will result in tax of 25% of the excess, so keep that aside in a seperate savings account. This assumes no other income, and a normal tax code. You can of course take a lower salary if you chose.

When you set up the company you should think about making your wife/husband a shareholder too, if you have one, so that you can pay them dividends too.

2 - I think you can do a CHAPS payment for more.

3 - Registering for VAT may be a good idea even if you don't need to as you can then reclaim the VAT on your purchases.

HM Revenue & Customs: When to register for UK VAT

[MonzaMike]

Ask an accountant

If you are making £200K profit per year then I'd suggest that you pay an accountant to advise you.

I wouldn't be basing my financial planning on some of the advice from this site. (Advice above excluded of course....)

[MarillionFan]

If you are making £200K profit per year then I'd suggest that you pay an accountant to advise you.

I wouldn't be basing my financial planning on some of the advice from this site. (Advice above excluded of course....)

I think he means £200k turnover which generates a profit.

[THEPUMA]

If you are transferring a sole-trader business to a company which has goodwill which is not intrinsically linked to you as an individual (so something you could in theory sell to someone else and they could continue to run the business profitably), then you should seriously consider the sale of your business to a limited company for a substantial sum rather than a transfer at nil value.

Whilst you will pay tax on the consideration, this will hopefully be at a rate of 10%. Obviously, you should check this before proceeding.

The advantage of this potentially twofold. Firstly, the company will then owe you the consideration and will therefore be able to pay this back to you tax-free in the future (having paid corporation tax and the capital gains tax mentioned above).

Secondly, depending when the business was set up, the new company may get corporation tax relief for the amortisation of goodwill.

In laymen's terms, if for example, you could justify a value of the business of £500K, you could pay £50K up front but the company would then be able to repay you £500K which could save you 25% of this (or more) ie £125K in personal tax and it could also save corporation tax at 20% (or more) ie £100K.

There are cashflow issues ie the £50K is payable quite soon (probably 31/01/13 if you transferred the business now) whereas the tax savings would materialise over a longer period of time.

PUMA

[mlc2009]

If you are transferring a sole-trader business to a company which has goodwill which is not intrinsically linked to you as an individual (so something you could in theory sell to someone else and they could continue to run the business profitably), then you should seriously consider the sale of your business to a limited company for a substantial sum rather than a transfer at nil value.

Whilst you will pay tax on the consideration, this will hopefully be at a rate of 10%. Obviously, you should check this before proceeding.

The advantage of this potentially twofold. Firstly, the company will then owe you the consideration and will therefore be able to pay this back to you tax-free in the future (having paid corporation tax and the capital gains tax mentioned above).

Secondly, depending when the business was set up, the new company may get corporation tax relief for the amortisation of goodwill.

In laymen's terms, if for example, you could justify a value of the business of £500K, you could pay £50K up front but the company would then be able to repay you £500K which could save you 25% of this (or more) ie £125K in personal tax and it could also save corporation tax at 20% (or more) ie £100K.

There are cashflow issues ie the £50K is payable quite soon (probably 31/01/13 if you transferred the business now) whereas the tax savings would materialise over a longer period of time.

PUMA

This sounds like an amazing idea. I run a few websites which I sell ad rates on and subscriptions to the tune of around £20,000+ profit per month and it is always rising. I'm going to see an accountant this week, but I shall bring this up with them as it sounds great. Thank you

By the way, does anyone know if web hosting bills should be classed as a fixed asset? I pay around £1000 a month for my servers, and always growing as the need for bandwidth increases

[mlc2009]

If you are making £200K profit per year then I'd suggest that you pay an accountant to advise you.

I wouldn't be basing my financial planning on some of the advice from this site. (Advice above excluded of course....)

Yep, booked an appointment with one this week. Thought I'd stick my nose in here whilst I wait

[mlc2009]

I think he means £200k turnover which generates a profit.

£200k profit, the turnover is slightly more but I don't have much expenses luckily

[THEPUMA]

This sounds like an amazing idea. I run a few websites which I sell ad rates on and subscriptions to the tune of around £20,000+ profit per month and it is always rising. I'm going to see an accountant this week, but I shall bring this up with them as it sounds great. Thank you

Hi mlc2009

Sounds like this could work perfectly in your case.

You can go for clearance from HMRC to make sure they accept your valuation. If you don't do this and it is later determined that the company paid you too much for the goodwill, there can be quite serious tax consequences. You also have to make sure the contract for the sale of the goodwill is worded correctly (to allow for HMRC not accepting your valuation).

If you need any further help with this, feel free to PM me (I am an accountant despite the username!).

Cheers

Puma

[Fred Bloggs]

Good luck, it sounds a great business opportunity. Well done the UK economy needs a lot more stuff like this.