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bigduckontax
bigduckontax, Accountant
Category: Tax
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I am currently in full time employment and earn roughly

Hi I am currently in... Show More
Hi I am currently in full time employment and earn roughly £40,000 and I am looking to start up my own personal training business. As I am close to the 40% tax threshold I'm looking for the most efficient way going forward for tax. Someone mentioned to me if I set up a LTD company I would pay smaller amount of tax and receive a dividend but I'm not sure how this works.
Any help on this matter would be much appreciated
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Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.

Customer reply replied 1 year ago.
Hi

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

I am working on your question ans should have a reply for you soon.

Customer reply replied 1 year ago.
Ok thanks

If you operate your personal training business through a limited company then the profits of the company will be taxed under the Corporation Tax (CT) regime at 20%. You can receive up to 5K of dividends in any one tax year and not pay any tax thereon, but dividends to not count in the CT computation so the company will still pay 20% on those.

One of the advantages of operating through a company is it places a buffer between you and the company in the event of some unfortunate claim.

I do hope that you find my reply of assistance.

Customer reply replied 1 year ago.
Ok so I wouldn't need to pay 40% tax if I went to a limited company. What would you recommend as the most tax efficient method I could use?
Also is it a annual dividend or how often can you receive this?

Possibly not if dividends were below 5K in each tax year whether taken in one tranche or in penny packets. However, the company would still pay 20% CT on any surplus. You would effectively be paying tax at your basic rate if you kept within these parameters.

Customer reply replied 1 year ago.
Ok I have no idea how much money I would earn in a year I'm thinking between 5 thousand to 10 thousand first year and potentially as much as 20 thousand the year after. Do you have to take a dividend? I don't think I would need 5 thousand anyway. Also is there a limit to earnings in a Limited company for paying 20% if I was making 50 thousand in a year would it always be just standard 20% tax rate. Thanks

CT is at a flat rate of 20% irrespective of the quantum of the profit. It is what makes the UK a tax haven within the EU.

You do not have to take a dividend; you can always leave it in the company bank accounts. If you draw a salary from the company and are a director you are an employee per se and must be remunerated through PAYE channels. This could, of course, put you into a higher tax bracket whilst a dividend of up to 5K would not.

Please be so kind as to rate me before you leave the Just Answer site.

Customer reply replied 1 year ago.
Ok If I wanted to add my wife to the business would she be eligible for a dividend also?

Providing she has shares in the company she can receive dividends in proportion to her holding.

Customer reply replied 1 year ago.
I don't know how shares work as it wont cost anything to start this business

You can buy an off the shelf company from many of the company formation agents. It is relatively inexpensive, from a low as GBP 4-99. These days most have a capital base of 100 or 1000 shares and these you can subscribe for and allocate as desired.

Customer reply replied 1 year ago.
Ok I have to pop away now thanks for your information. Is that all the expense of running a ltd company or are there any other charges?

There is an Annual Return to be made to Companies House which costs 13 quid. You may need to employ a local, trusted profession to prepare your annual accounts.

Please don't forget my rating.

Thank you for your support.

Customer reply replied 1 year ago.
Hi I did have 2 other questions about my original question first if I register my home address as my business address will this affect my home insurance am I better with a PO box and second if my wife had 1 share and I had 99 would be both be entitled to 5k dividend each year or is in proportion to your shares. Thanks

Dividends can only be granted in proportion to the shares held. Thus a 10K dividend you suggest (5K x 2) would be 100 quid to your wife and 9900 GBP to you.

Your home insurance might be affected by the use of one room as an office, but this is now so common as to be unlikely in this day an age. It is, however a matter for the individual insurance company. Using your house as a accommodation address is unlikely to attract insurance attention and in any event a PO Box number would preclude this.