|Legal: You are the business, you are the owner and considered self employed. You cannot be your own employee. You are personally responsible for any debt.
||The business is a separate legal entity, you are a shareholder and hold all or a proportion of the chare capital. The debt is limited to the company and not you personally. You are a director/secretary to the company and also an employee paying National Insurance and income tax on you salary.
| Set up: Just inform HMRC that you are trading within 3 months of starting up.
||Dead easy to set up a company with companies house, they issue a certificate of incorporation by email, pop it over to your bank business manager and hey presto your business bank account and you are ready to trade.
|Tax: You pay 3 types of tax
Class 2 NI (£2.88/wk)
Class 4 NI
You can employ people and pay a salary.
Eg Spouse if it is it commercially justifiable.
You have to make 2 tax payments every year.
One at 31st Jan and second at 31st July, this includes an upfront payment of half the estimated tax bill next year.
|The Company has to pay corporation tax* 20% on profits ( after all running costs are taken out)If the rest of the money is left in the company then no further tax need has to be paid, however further tax is incurred when money is withdrawn:
-When you withdraw a salary
-When you withdraw money as dividens A lot of small businesses owners will pay themselves (and possibly their spouse) a minimum salary around £10K (so as not to have to pay income tax or national inurance) and withdraw the rest as dividens.
However it still build up your NIC record, allowing for future benefits such as state pension.
Dividens tax is lower than income tax and there is a saving to be had, this is enhanced if your spouse also has shares in the company.
* At present the tax saving by using a limited company was significant especially when a spouse has shares. However George Osborne is targeting small companies and the 2016 budget will greatly diminish tax savings.
Tip : Take out your dividends before the new tax year.
|Borrowing: You can take out money from your account as you like.
||When you take money out it is usually divided in ratio of the allocated shares, however if you need to borrow money then you will pay a tax charge of 25% if you do not repay the loan within nine months of the year end.
|Pension: You can pay into the NHS pension.
||You cannot be enrolled into the nhs pension but you can have a private pension, any contibutions your company make is a tax saving.