Self Employed to Limited Company advice

browny76

Hi,
Just checking something for a new client who has ceased self employment recently (has also let HMRC know this) and has set up a limited company.
Does she need to take into account her Self Employment income when looking at the best employment salary and dividends combination for this tax year?
For example, my new client will have approximately £15000 taxable income through being Self Employed this tax year. When showing the client the new employment/salary structure through her own company, should I reduce the basic rate dividends available to accommodate the Self employment income?
Thank you in advance should anyone have dealt with this previously.

Kind Regards
Mark

MarieNoelle

Not sure I understand your question correctly but the client will be taxed on income from all sources and it looks like their personal allowance is already used up by self employment income. She may want to be paid a small salary through the ltd co though for NI purposes (and reduce ltd co liability) and not just dividends.

browny76

Hi, apologies my original question wasn't particularly specific. The client had decided to incorporate and had set up her limited company before coming to me. If I set her up as an employee through her own company through payroll (I currently use Payroll Manager) then it will automatically apply the tax free income allowance. As she's earned 15k as a sole trader this tax year she has to submit a self employed self assessment. I thought that the employment income would be viable for the tax free income allowance still and then her sole trader income would be considered as additional income when declared in the 2015/16 self assessment. I thought, probably wrongly, that I would then have to consider the 15k when telling the client the available dividends remaining within the parameters of the basic rate band.

MarieNoelle

Yes I believe you are correct. A quick income tax calculation should give you the max tax free dividends she can receive (if profits allow this). If she has incorporated her sole trade business there may also be other issues to consider.

browny76

What other issues do you think she may have? She ceased her sole trader accounts and let HMRC know she was no longer SE. She then formed her own Ltd company with a view to taking up a contracting role. Thank you for your input, it's a new area for me so I'm very grateful.

MarieNoelle

Hi I had posted a response with a link over the weekend but it has disappeared. I haven't got time to research it again now but maybe @SianaT could look into it?

SianaT

Thanks for letting me know @MarieNoelle - I will get this looked into for you and I'll be in touch.

browny76

Hi. Thanks ever so much for your input. Honestly there's no need to go to any extra lengths. I thought if there was any information off the top of your heads that might be useful to pass on to me, that's all. I've read up on this subject and there are pros and cons. The decision to go ltd was made by the client before signing up with me. If there are any useful tips/ pitfalls that don't cause to much effort from your side is be grateful of course.
Thanks again.

MarieNoelle

Is she carrying on the same business or is it a completely separate trade?
Here is a link to an article from AccountingWeb that highlights some issues related to incorporation (scroll down to "practical issues").
http://www.accountingweb.co.uk/topic/tax/incorporation-why-bother/514243

Hope this helps

MarieNoelle

Is she carrying on the same business or is it a completely separate trade?
Here is a link to an article from AccountingWeb that highlights some issues related to incorporation (scroll down to "practical issues").
http://www.accountingweb.co.uk/topic/tax/incorporation-why-bother/514243

Hope this helps

SianaT

Hi @MarieNoelle - we've found your post. Sorry about that!