Setting up Limited Company

[JasonG]

Hey everyone, firstly I'd like to point out I'm not looking to avoid contributing towards my daughter. I have paid child maintenance for years now, however, due to various changes in circumstances the amount I'm being asked to pay is simply criminal. It's roughly double the amount I can actually afford, since CMS stupidly don't take into account many outgoings. I'm more than happy to pay the amount my daughter costs to keep, but not to line my ex's pockets.

I've heard that you can set up a limited company to reduce the amount you pay. How does this work exactly when I'll still be paid from my full time employment in the same manner? Can I somehow pay my wage into the company and pay myself roughly 50% of it back, which will be seen as my wage by the CMS?

Thank you for your time!

 

[bakedapple]

Your employer wouldn't pay your salary into your ltd; furthermore, you'll end up paying far more tax than CM. There would be employer's NI, corporation tax, dividend tax etc...; if you earn over £85k, then VAT as well. To do it properly, you'd have to go contracting or start your own venture. The downside to contracting is you lose all employee rights.

With regards to how ltd and CM work, I'm still trying to work that out myself (started a ltd not long ago). Most ltd owners pay themselves very little salary such that they pay the minimum NI to get state pension, and take the rest as dividends as the most tax efficient way of taking money from a ltd. Both these are due CM when you extract them from your company, albeit the joined up nature of CM with dividends from what I have read appears very poor (they currently see paye but not dividends so rely on you telling them). What you then get are timing issues - while you are starting your business, you probably aren't taking a wage yet as most businesses fail in the first year. Dividends are typically taken at the end of the company's financial year once you know what you have in profit, although you can take them earlier if you know you have enough to see you through corporation tax etc.. This lumps a lot of the CM liability towards the end of the financial year rather than continuously during it. You may also want to keep a certain amount of retained profit in the business for uncertain times ahead, thereby spreading that same CM liability over several years.

Eventually, you may retire and sell the business for capital gains (rather than income) or the children have left home; you may still have retained profit that you can then extract. However, it may be simpler and more profitable to take the money out now and invest it than sit in a business bank account at 0.0001% interest for 10 years.