How to form a limited company
Many businesses are making the change from being a sole trader to running their business through a limited company to take advantage of the limited liability and also the opportunity for tax planning.
An extended version of this HRBS.biz “How to form a limited company” guide can be downloaded as a free pdf here.
Click here for the “How to save tax and National Insurance” article.
Suppliers and customers often prefer to deal with a limited company as it can imply stability, longevity and also the company’s accounts and details of directors are in the public domain. This makes it easier for credit reference agencies and debt insurance providers to recommend credit limits. Unfortunately your competitors can find out about your company’s performance, ownership and mortgages etc at Companies House from only £1!
Read more about How to form a limited company
A quick guide for your new limited company
Getting at your profits
Extracting your profits from your company can be by a mix of wage (ie under PAYE) and dividend. In order to pay a dividend the company must have sufficient after tax profits. ie for a £10k dividend to be paid the company must have approx £12.7k pre tax profits (corp tax rate of 21%).
Do not be tempted to withdraw more than is legally available as dividend, as it would be “illegal” and HMRC may class it as a salary or a loan to the director (taxable benefit in kind if over £5k) and charge tax & NIC.
For more on how to extract your profits in a tax efficient way, read our article “Save tax and National Insurance with your limited company”.
