UK Limited Company

I was wondering if anyone who had set up a UK limited company may be able to help me with my question.

I was looking into setting up a company recently. It seems that for a small company that has profits of £300,000 or less the tax is 20%.

However, once you take withdrawals via dividends you are subject to tax. This seems ok if you are a low rate tax payer as the 10% tax credit you get offsets the 10% tax rate so you pay overall no more than the corporate tax rate.

On the other hand, if you are a higher rate tax payer you are subject to a 33% tax, which after the 10% tax credit, is taken into account, leaves you liable to paying 23% on the dividend you receive.

So, if you are a higher rate tax payer your total tax would be 43% (20% corporate and 23% on the dividend), which is higher than the current CGT rate of 40% especially since you are getting £9k free with CGT that isn't taxed.

I feel I must be missing something here. If you are a higher rate tax payer do I really pay more if I set up a company?? Or have I got it wrong and dividends aren't taxed??

 

Why not set up an off shore company and pay tax on the money you bring back to the uk?

 

Unfortunately I think that is only possible for non-domicile residents.

 

I disagree. We have not had exchange controls since 1979 so you can transfer money anywhere. As long as your brokerage accepts foreign account i don't see any problem.

 

The problem is you still have to pay tax on offshore earnings.

 

Say you make £300k - you pay 19% corp tax.

If you then pay yourself a dividend up to top of the lower rate bank (about £35k) you pay no income tax on that amount.

Any dividend paid above the £35k level then is subject to income tax.

Not sure where yuou get 33% from - higher income tax rate is 40%.

 

You only have to pay tax on income repatriated, you do not have to pay tax on capital gains of an offshore company until it is repatriated.

 

Its not 43%, it was more like 38% in total.
As the 23% is only on the 80% remainder.

Also the small companies tax is rising from 19% to 22% over the next couple of years. This will push the above figures up by 2%.

 

Its not that easy.

"If you are UK resident for tax purposes and control (directly or indirectly) a company that is registered overseas then despite the fact that the company may be registered overseas this would not preclude the company from also being resident in the UK for tax purposes, and consequently liable to UK corporation tax. Furthermore there are a myriad of complex tax anti-avoidance laws that could still tax the earnings in the UK even if it could be argued that a UK resident does not control an overseas company."

This is not to say it isnt possible but you need good legal advice.

 

So, if that is the case then the 38% will move up to 40% which is the same as CGT. Thus you will be paying an almost identical rate.