Limited Company benefits

Hi

I've recently set up a limited company (IT contractor, director of the company) and someone was saying to me that most of the benefits of doing so are gone. Apparently, the only real benefit is that by paying the profits as salary, it counts as an expense therefore no Corporation tax needs to be paid on it. Also that the pension benefits for a company director are not the same as they were. Can any one point me in the right direction with what I can do ? Thanks

Here are a few in no particular order:

1. Limited liability if you get sued;
2. If you are a proprietary director (>15% of share capital) the company can pay amounts to a 'self directed trust' for your pension without tax liability to you and a CT deduction for company;
3. Revenue allow companies to pay the civil service rates of mileage and subsistence .. without any receipts !! - Just try that as a self employed and the hoors will have you.
4. CT is low at 12.5%
5. With 2 and 3 above why take any salary at all
6. And its all 'legit'
7. You might raise BES as a company not as Joe

For IT contractors who work away from home the civil service flat rate allowances remove the hassle of keeping expenses receipts but in these cases genuine hotel and travel expenses are being incurred and in alot of cases people have to revert back to the receipt basis as the expense allowances drop dramatically for periods over 28 days spent away.
Also these allowances are linked to salary ,I'm not sure you could pay yourself flat expenses if you were not drawing a reasonable salary from the company.

Because of the surcharge on retained income directors have no option except to pay out all the co.s income as salary.

To get the benefits of the pension legislation you would need to be setting up your own self administered pension scheme ,this is a big step and you would need to be looking at a reasonably long time frame of working as a P.Director
Also what you can fund for the pension is obviously linked to the salary you pay yourself. You could not for example pay all the companies money into a pension scheme and pay yourself a nominal salary.

Limited liability as anyone knows who has there own company is a pretty illusionary benefit.

So I wouldn't get too excited about setting up a ltd company ,there is a lot of hassle involved and little benefit for alot of peole.

Thanks for replying.

I'm long used to receipt based expenses, though I haven't been travelling away much at the moment.

In the UK you could take dividends out of the company and just pay the 20% tax on that, but that doesn't seem to be the case here i.e. you would end up being caught for the full 42% ?

Re pensions, I think I will contact Eagle Star as they seem to have the best record. I thought there was no limit a director could pay into their pension fund ? Or is this another myth ?

It's my accountant that I've been relying on but I'm not sure he is all that hot on tax efficient methods !

The main reason you don't pay dividends is that you pay tax at 42% same as salary but you don't get a Corporation tax deduction so you effectively pay another 12.5%.

The rules are that you are allowed a deduction for funding
2/3 of your salary as pension.
This is not generally a problem. However you have to be paying yourself a reasonable salary to avail of the pension benefits.

Thanks Capall, for the clarification.

2/3 is fine as I pay myself up to the 28K 20% limit.

I don't know if this is a stupid question, but is it possible for my company (ie me !) decide to invest say 50K in property (and get a commercial mortgage etc) or is that not the way to go ?

Buying property through your ltd co is definitely not the way to go ,you will end up with a double CGT bill.
If you don't pay out your full earnings as salary
how do you plan on getting the rest of the money out of the company in a tax efficient manner ?
I am hoping you are earning more than 28k if you are having to operate through a ltd co

Buying property through your ltd co is definitely not the way to go ,you will end up with a double CGT bill.

See for more on this.

My accountant is only really giving me the option of Salary and Pension as regards getting money out of the company in any sort of tax efficient manner. Surely there are other options ?

Yes, I am earning more than 28K, so I'm going to have to do something about this sooner rather than later.

You don't have the option of just leaving money in the company as you will be hit with a surcharge as yours is a professional services company.
You have 18 mths to distribute the money before a surcharge applies however if you haven't paid the money out as salary before your company's yr end then you will be paying Corporation tax on it as you will be left with a taxable profit in the company.
There are no tax efficient ways to get money out of a ltd company when you are just a one man services co.
Although you can write of expenses ,this is usual minimal savings for someone who is earning significant income.

Thanks Capall, not good news then, but at least I can resign myself to it now !

You don't have the option of just leaving money in the company as you will be hit with a surcharge as yours is a professional services company.

Click to expand...

What surcharge is this? - surely not yet another tax on top of corp tax etc etc...

[broken link removed] perhaps?

Thanks clubman. Never heard of this tax before.

Wouldn't it just be easier if companies (and individuals) handed all their money over to the revenue, and see if the revenue feels like giving any back?

The close company surcharge for service companies is not the same thing as PSWT.