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bigduckontax, Accountant
Category: Tax
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Hi Ive recently set up some premium rate telephone lines as

Customer Question

Hi I've recently set up some premium rate telephone lines as a business. These are managed for me with the advertising expenses etc taken out of the income.

My question is I have seen a website which is which says you can set up a income trust they take 10% of your income to set up the trust an you pay no ni or income tax is this legal?

An otherwise what is the best way to minimise my tax?
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.

Hello, I'm Keith and happy to help you with your question.


I have tried to download this site and it either does not download or alternatively Property Mentor says the page does not exist.


Please note the following comments [edited] from the web:


'Dear everyone,

I joined Property mentor January this year. They have a very nice website.I was excited because i thought i could 'buy a property without putting capital down' like they said.

After the course in Milton Keynes i began hard work of analysing, research, viewing property and negotiations. I found a property with asking price 209k. I believed the property was undervalued and it should worth 290k. It was difficult to negotiate and finally the vendor agreed 204k. I was happy and contacted a guy in Property Mentor who could help me.

Jason agreed to help me. I told Jason clearly I don't have money to pay deposit. Can i can bridging loan or something. He asked me to pay 1,200 pounds as introduction fee. I paid by card. Then he recommended me a solicitor and a mortgage broker.

I told Jason clearly the purchase price will be 204k but i thought the property potentially should worth 290k. I paid mortgage broker 495 pounds in advance. The mortgage broker later contacted me and agreed to apply for a mortgage of 289,950 for me (property mentor told them to do so). I was surprised but did not say anything. However when I accidentally told the mortgage broker the purchase acutually is 204k then he said: no I cannot help you. the mortgage must be based on the purchase price rather than the potential value.

In the meantime. The solicitor told me they could not work for me because they have not reach a deal with PM on the commission fee. I was shocked and tried to contact Jason but he did not reply me (as he said later he was not in the office for some days). The estate agent phoned me everyday and asked me to complete the purchase within one month. I had to pull out in that instance.

I felt exhausted and finally realised that purchase of properties is rich people's game. I am just an electrician and at moment not so many jobs. I told Jason i just want to quit property mentor.

The problem i keep receiving letters asking for money of 150 pounds every month (pay 4 years of total 7,200). I really feel should not pay this money. Is this fair?

What shall I do? I know they will continually send me letters asking for money. I don't have money to find a solicitor. Shall I go to police? Do they have time for this small amount of money disputation?

Thanks everyone.'
Reply With Quote
Default Re: Property Mentor Scam!

I know it's not much consolation for you at the moment, but this is such a scam. Regardless of what people might have you believe, it's not possible to purchase a house without spending some of your own money.'



So there you are; this site may well be an elaborate scam.


You can minimise your tax position by making contributions to a private pension scheme. You may invest up to 100% of your salary (in your scenario the net profit from your telephone business) up to a maximum of 40K. If you do this through a SIPP you can go back 3 years and the maximum limit for prior years was 50K annually. You claim for the contributions through your annual self assessment tax return although a pension company will usually reduce your premium levels by the basic tax relief and claim that direct from HMRC. If you are only a basic rate tax payer it's the taxation equivalent of the proverbial lemon. Don't forget to advise your tax office of your new self employment status.


I do hope I have helped you with your problem.

Customer: replied 3 years ago.



Would you say being self employed is the best option?

Or setting up a Ltd company?


As im looking for the most efficient tax way as I want to be able to withdraw 42k to pay off my mortgage.


If self employed what rates would I be taxed on?


As I work full time

Expert:  bigduckontax replied 3 years ago.
If you go down the self employed tax route then every penny you make of net profit will form part of your income and will be taxed at your marginal rate of Income Tax, 20%, 40% or even 45% depending on your total income level. On income over 100K you loose your Personal Allowance progressively at a pound for every two pounds over the hundred thousand.

If a limited company is formed then the profits would be subject to Corporation Tax (CT) at 20%, but any payment to you as a Director would incur a personal tax liability of exactly the same as if you were self employed as any dividend taxed at 10% would be grossed up for higher rates tax. Also dividends do not reduce the profits of the company for CT purposes. Drawing money from a company as a director in the form of a loan to you is fraught with problems. You are advised not to go down this route.

Frankly, you are in a cleft stick tax wise, always bear in mind Benjamin Franklin's dictum that in life there are but two certainties, death and taxes. If your current income is only in the 20% bracket then using a company and paying dividends is marginally favourable to you as an individual, but as soon as you go into the realms of higher rate taxation there are no advantages.

So sorry to have to rain on your parade.

Customer: replied 3 years ago.

So is it fair to say if I budget to make 50% of what I'm earning as net income after tax?


I currently pay 20% tax on my wage.


So would I have to pay more having this income too?


And what about ni?

Expert:  bigduckontax replied 3 years ago.
Yes, but if you are only in the 20% tax band then receiving income from a company by way of dividend is beneficial to you as this is only taxed at 10% whilst you are within the 20% taxable band. It also escapes NI. Thereafter, it doesn't matter and will effectively be taxed at the higher rates.

Any drawings by way of salary would involve NI deductions if your total income is between the higher and lower limits. If your income exceeds the higher limit then Tax Aid gives the following advice:

'For high earners who are paid over the Upper Earnings Limit, the National Insurance rate falls. On earnings above this limit, the employee pays a lower rate (2% in 2014/15 and 2013-14). The employer continues to pay the standard rate of employer’s National Insurance on these earnings (13.8% in 2014/15 and 2013-14).'
Customer: replied 3 years ago.

Ok so if I set up a company.


I have corporation tax at 20%


Then say I didn't take a salary. As I issue I have is each weeks income isn't paid till 45 days later.


So what I would want to do is withdraw the income at year end would that mean I only incur corporation tax?


Or would I incur income tax an ni?


As the realistic aim is to turnover 50-110k


As the Ltd company appeals. I just don't know what I would have to file? As the money I'd recieve has all expenses taken off.

Expert:  bigduckontax replied 3 years ago.
You would have to file CT returns on line and the accounts for Companies House can be done as part of this process. You are correct in your surmise that if you don't dray salary out the company would be taxed at CT rates only. However, as soon as you draw moneys from the company then your PATE problems kick in as I have explained.

Any income paid by the company by means of dividends would have to be taxed at the point of payment. The same is true of any salary.