Private Limited Company

[AJB Temple]

It is not all about tax. There are times when in business when it is important to LIMIT ones LIABILITY. In small businesses, tax management is usually trivial, especially when the VAT threshold is reached. HMRC know this.

 

[DiscoStu]

I own my own Ltd company. I work as an IT contractor. Companies will only "employ" me by employing my company. They can't employ me for 6 months. It's too much of a hassle and things like national insurance and pensions etc just don't work like that. As for tax, it's reasonably tax efficient but not much more. I have to pay company tax as well as tax on my dividends and salary. I am VAT registered and because I have a service company and don't have to be registered I charge vat at 20% but I only have to pay 14% so I get to get 6% which is basically my pay for being a vat collector. Some people put their other halves on the pay roll as directors to reduce the tax that they pay but the tax on dividends changed this year so it's not hugely advantageous. It all is to be reported on a tax return so not exactly dodgy or the rich paying no tax! You need to go to complex off shore schemes.


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[whiskywill]

I am VAT registered and because I have a service company and don't have to be registered I charge vat at 20% but I only have to pay 14% so I get to get 6% which is basically my pay for being a vat collector.

Surely that is illegal or, if not, it should be.

 

[marcros]

the flat rate scheme. all above board.

https://www.gov.uk/vat-flat-rate-scheme/overview

 

[AJB Temple]

And the flat rate scheme has the huge drawback of not being able to claim back input tax on purchases apart from some capex. Hence it may be suitable for some businesses, but not those where there is a modest gap between inputs and outputs.

 

[RobinBHM]

I hadnt heard of the flat rate scheme before the posts above.

I can see it being a simple way to do the VAT for a service business that has costs that are primarily labour. I cant see any benefit for any business that has overhead costs since as AJB says, the input tax cant be claimed back.

 

[Inoffthered]

SheffieldTony,



The whole idea of Service Co to avoid tax is a myth. .

Given how the BBC (hypocrites that they are) adopts a moral stance when the issue of tax avoidance arises you may be surprised to learn that the BBC effectively forced a lot of presenters to become self employed and work through intermediary service companies. This was done so the BBC did not have to pay employers national insurance and so it WAS about tax avoidance but by the employer not the employee.

HMRC have been clamping down on the use of intermediary/service companies and this clamp down now extends into numerous areas, including the construction industry.

For those wanting more info (or who need something to help them sleep) have a look at this

https://www.gov.uk/guidance/ir35-find-out-if-it-applies

 

[RobinBHM]

I imagine that a lot of businesses including the BBC prefer workers to be self employed to avoid all the complications that come with being an employer. Being an employer these days is a minefield.

Construction companies generally employ only a handful of staff and almost all the trades used on a site will be self employed.

 

[Mark-numbers]

Well put beech.

I'd just like to add that setting up and making a go of a company, employing people, dealing with HSE, insurances and general shiteness is difficult, hence most folks stick with the hum drum world of employment.
Every major debt I take on is covered by my home as a guarantee.
At the moment I hate it with a passion, I'm too busy and feel like I'm having a breakdown everyday, but as I keep emphasising to my misses, when you are an employer rather than an employee it is just not feasible to have a breakdown. Therefore there is a good chance I will just be a mass murderer at somepoint, so watch it.

We are sailing in the same boat, I detest going to work at the moment!!

 

[beech1948]

SheffieldTony,

IR35 was introduced initially to make sure that contract IT workers were working within the Ltd Co tax scheme.
The only people to be worried by this were those who worked for the same company for say 18 months and were seen as a way to avoid employment taxes.

The government took over 50 cases to courts and lost each case. IR35 is a result of a Labour Gov obsession with higher earners and a completely biased piece of law.

As a consultant I now restrict my work for any one company to 6 months in any year and also often have 2 or more contracts on the go at the same time simply to ensure that IR35 can not bite me.

 

[DiscoStu]

Lots of companies need to take on people with specific skills for projects etc so a lot of us one man limited companies exist.

It's no different from a business getting an electrician in to do some wiring, they're not going to employ an electrician themselves they buy that service in.

The flat rate tax scheme isn't illegal and in my opinion nor should it be. Yes it's advantageous to me, but it also means that I collect VAT on behalf of HMRC. If I didn't then they'd get nothing. You need to have a turn over of around 90k to be required in law to register for Vat. So if you have a turn over if less than that then you don't need to register so the flat rate scheme is a way of encouraging more people to register and for the government to collect more tax. The government let me keep around 4% as my "commission" for collecting it on their behalf.

I do know a few guys who do bathroom and kitchens for people who aren't VAT registered and I couldn't figure that out, but what they do is to get the customer to buy all of their own materials etc so that they are only invoicing for labour that also means the customer doesn't pay VAT on the labour charge.


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