soletrader and ltd question - help really appreciated

**smingle** · 12-03-08

Ok my scenario :

I have been a soletrader from Jun 2007 - April 2008 and my tax bill is due in Jan 2009

I am starting a LTD company from April 5th 2008 and whilst I was having a chat to my accountant last week about this, she said something which has contradicted with what someone else has told me yesterday (my accountant is away for a week at the moment and then I am away for a week)

Basically my accountant told me that in Jan 2009 they will ask for half of my estimated tax bill "on account" for that year.

However when I spoke to someone yesterday about this, they told me it was rubbish and when you start a LTD company you do not have to file accounts for 22 months so my first tax bill from the LTD company would be due in Jan 2010 ??

Please can someone offer some advice to this as I am totally confused now

**drivetowin** · 12-03-08

I think you are getting confused between the two types of taxation so in a way your accountant and the person you spoke to yesterday are both right.

Your personal income tax self assessment will fall due in January 2009. The tax on your company's profits (corporation tax) will not fall due until later (depending on when you set your accounting year end date (your first year can actually be longer than a calendar year)).

**smingle** · 12-03-08

Thanks for the reply I really appreciate it

Ok lets say this then

1. I make £120,000 profit in tax year april 08-april 09 as a LTD company
2. I take no wage at all apart from the minimum tax free allowance (£450 a month or whatever it is)
3. I only take quarterly dividends

So my personal tax bill will be due in Jan 09, but surely there isn't any tax due as I am keeping my personal tax allowance below the band ?

And when would my LTD company corporation tax be due ?

Thanks for all your help

**drivetowin** · 12-03-08

Dividends are not free of income tax - on dividends above the upper tax limit (currently £34,600) you will pay income tax at 32.5%

Corporation tax is due nine calendar months and one day after the end of your accounting year.

**smingle** · 12-03-08

lol bloody hell I am even more confused now

Thanks for your help but I genuinlly am more confused !

**Barry** · 12-03-08

Just to add to the confusion - You may want to look at 'selling' your now personal websites to your 'business' when you register it as a Ltd company.

Ta

**smingle** · 12-03-08

Originally Posted by Barry

Just to add to the confusion - You may want to look at 'selling' your now personal websites to your 'business' when you register it as a Ltd company.

Ta

Lol ffs !!! why would I do that ?

Sounds interesting though lmfao

..........drifts off to companies house to cancel LTD company formation lmao !

**Travel Pixel** · 12-03-08

selling your sole trader business to the new company will allow you to pay yourself back a 'loan' the company uses to buy your sole trader business. The loan repayments are tax free and a business expense.

You dont pay income tax on dividends below 34000ish but as they come out of prodits you will have to pay corporation tax on them. Above 34000 its different as pointed out above.

You still have to do a self assessment as a company director (i think).

Get yourself an accountant. If you are making good profits a LTD company is the right thing to do.

**befuddle** · 12-03-08

Originally Posted by Barry

Just to add to the confusion - You may want to look at 'selling' your now personal websites to your 'business' when you register it as a Ltd company.

On that note, does every new website I build (as a Director of my LTD company) belong to the company?

**smingle** · 12-03-08

Originally Posted by Travel Pixel

selling your sole trader business to the new company will allow you to pay yourself back a 'loan' the company uses to buy your sole trader business. The loan repayments are tax free and a business expense.

You dont pay income tax on dividends below 34000ish but as they come out of prodits you will have to pay corporation tax on them. Above 34000 its different as pointed out above.

You still have to do a self assessment as a company director (i think).

Get yourself an accountant. If you are making good profits a LTD company is the right thing to do.

Thanks for the input.

But then obviously I would be liable for the tax as the money I will be receiving from my LTD company will be taxable in my personal tax ?

Wow what a can of worms this is opening

**Travel Pixel** · 12-03-08

But then obviously I would be liable for the tax as the money I will be receiving from my LTD company will be taxable in my personal tax ?

You mean the loan repayments? I dont think so as it is in effect a 'personal' loan from you to the LTD company but dont qoute me on that - saw our accountant a few weeks ago about the very same matter.

As i say, its worth getting an accountant, they will let you know about all these little things.

**smingle** · 12-03-08

Hi Travel Pixel,

I do have an accountant but she is away at the moment.

Can I put ANY value on these websites to "sell" to the ltd company then ?

Thanks

**Travel Pixel** · 12-03-08

The value is mostly based around the profit so im told.

Other aspects of value include any physical assets.

There is some value placed on the potential i think but not a lot.

If you have a strong business model (think FAT affiliate sites) then that will probably count in your favour. If you have a lot of crappy thin affiliate sites there isnt much value beyond the profit.

The accountant should decide on the value after a discussion with them.

Dave

**hrbs** · 12-07-08

Hi

The value of the sites sold to the limited company will be based on various factors:

Previous profitability
Future profitability (obviously estimated - eg target market may be growing/receeding)
Source of traffic - SEO would value higher than PPC

A guide would be to research domain auctions/sales of similar sites/domain names.
HMRC may query how you calculated the value so collect as much evidence to support your valuation as possible.

Tax:
As others have said, the company's tax bill is due 9 months + 1 day after the end of the accounting period.

As a director you will be required to complete a personal tax return and pay personal tax under self assessment on all your personal income. However it is possible to minimise tax and NI by keeping your salary and dividends within the basic rate band. If you have a sufficiently profitable business and need an income higher than the basic rate band then, assuming you are paying low salary and high dividend, you will pay tax at an effective rate of 25% on the net dividend that takes you into higher rate tax.
eg if £9k net dividend (the amount paid by the company) is in your personal higher rate tax band, then you will pay tax at an effective rate 25% on that dividend.
[25% of net dividend = 32.5% of gross dividend - 10% tax credit of gross dividend]

£9k net dividend = £10k gross dividend ie £9k + £1k "tax credit"
Higher rate tax = 32.5% x £10k - 10% x £10k = 22.5% x £10k = £2,250 = 25% x £9k (net dividend)

I have written various articles on this at tips.hrbs.biz (Business and accounting tips from HRBS Accountants) and in particular at
Save Tax and National Insurance with your limited company .
It has a downloadable spreadsheet which calculates the potential tax/NI savings by trading via a limited company.

The spreadsheet is available at http://hrbs.biz/small-business-speci...on_2008-09.xls

Regards

Keith
Fixed Fee Accountants and Tax, VAT, Payroll Specialists providing proactive, professional service to small businesses - HRBSaccountants.com