How am I taxed as director of limited company that is also employed by another company?
I am a UK resident working at a consulting firm earning 33k salary before tax. I have setup a limited company with a friend in which I am a director with 1/3 share in the company. We will soon be launching our flagship product and hope to be receiving an income from this business, which I expect to be 30k+ for the company as a whole over the first year. But our targets have this figure as be close to 80k+.
What are the accounting and tax implications for someone in my situation? I am aware that I will have to submit a Tax return every quarter for the limited company, that will have to be signed off by an accountant (although we may use a service such as Sage to do this). But, as I'm also employed full time I suspect that I could be taxed more than I should as I will have 2 incomes.
Thank you in advance for any advice or information. I greatly appreciate it.
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In this case you have some options.
Not paying your self a salary means you can take money out of the company as a dividend. You will need to pay tax on this BUT you won't need to pay national insurance and the employers National Insurance (an additional 10%). It maybe that your friend needs a salary and you don't. If neither of you need a salary then you can just payout dividends. You don't need to pay out all of the profits as a dividend immediately.
Given your target turnover (80K) you will need to be VAT registered.
Don't forget you will need to fill in a self assesment income tax return and declare any income from the company (either as salary or dividend). It is likely that HMRC will notice that you're a company director and send you a self assesment form.
Finally if you take out money from the company, you will also need to pay tax on account for the following year on the basis of income in this year, this means you need to budget for this i.e. in Jan 2021 you'll need to pay the tax due on dividends for April 2019-April 2020 AND pay half on account (this is on the same basis that you will get a similar dividend the following year) for April 2020-April 2021 (the remainder is due sometime in July)
In short get an accountant to help with the book keeping and personal tax.
BTW it is normal for contractors in the UK to pay themselves a small(ish) salary from the company (usually somewhere between £10K-20K) so they pay some tax and NI but take all the other money as as dividends to avoid paying employers NI.
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