Limited Company

[SixFooter]

Is it worth forming a private limited company for selling honey and bees?
Without a limited company, are you not liable to pay tax on income from sales?

 

[drstitson]

Only if you are going into "professional" production.

HMRC will not be bothered about proceeds of "surplus" produced by a hobby keeper.

 

[DulwichGnome]

As I understand it, you only pay tax on any profit you might make from a business.

It will be a while before my bees pay for the Rolls I bought to carry them around in

Mike.

 

[bruce]

And a Limited company will mean more cost and paperwork. You'll have to produce annual returns to HMRC (on time or face an automatic £300 fine) and to Companies House and in the correct format - and that might require the services and cost of an accountant unless you already have those skills, you'll also have the cost of setting the company up. If the company makes a profit you'll have to pay corporation tax, and as a director of the company you'll have to go through the loop of convincing them that you're not also an employee. And of course if you want to take money out of the Company it'll either have to be paid as a dividend (which would be subject to tax) or as a payment to an employee - again subject to tax and NI.

 

[blackbrood]

Is it worth forming a private limited company for selling honey and bees?
Without a limited company, are you not liable to pay tax on income from sales?

If you are suggesting that you could create a private limited company to avoid paying income tax. You are mistaken, that would be income tax evasion which is illegal. So stop being stingy and pay the tax man his due.

Either with or without a limited company you still pay tax on income. Even as a hobbiest if you start making a lot of money you should be paying income tax on profit. If you start working colonies on a commercial scale you do not need to be a limited company but you would need to pay tax on profits (not sales). Profit is sales minus purchases.

 

[Repwoc]

Without a limited company, are you not liable to pay tax on income from sales?

Companies have to pay tax too, it's called corporation tax. Forming a limited company can be tax efficient if there are significant profits since companies don't pay national insurance. You extract the tax-paid profits from the comapany as dividends. There is no national insurance contributions on dividends and, since the company has already paid the tax, they are tax free too (so long as your total earnings remain within the basic rate tax band).

There are other advantages to setting up a limited company, chiefly the benefit of limited liability. This means if anything goes seriously wrong then in theory it's the company that is liable and not the shareholders; however as a director of the company (which you surely would be) then you may find the law would still go for you if, for instance, someone was seriously injured as a result of your action/inaction/negligence.

 

[Black Comb]

Companies have to pay tax too, it's called corporation tax. Forming a limited company can be tax efficient if there are significant profits since companies don't pay national insurance. You extract the tax-paid profits from the comapany as dividends. There is no national insurance contributions on dividends and, since the company has already paid the tax, they are tax free too (so long as your total earnings remain within the basic rate tax band).

There are other advantages to setting up a limited company, chiefly the benefit of limited liability. This means if anything goes seriously wrong then in theory it's the company that is liable and not the shareholders; however as a director of the company (which you surely would be) then you may find the law would still go for you if, for instance, someone was seriously injured as a result of your action/inaction/negligence.

A few years ago I asked our accountant which was the most tax efficient - pay yourself salary or take dividends. I received a 5 page argument which basically said there is not much in it but dividends just shade it.

 

[Repwoc]

pay yourself salary or take dividends.

It's mostly in the NI. The way I see it (and I'm not an accountant so please assume this is all rubbish) if your company pays you salary then the company is liable for employer's NI (12.8%) and you have to pay employee's NI (11% between the thresholds), total almost 23% of your salary.

Like I said above, there is no NI on dividends, so if you pay yourself entirely in dividends you won't pay any NI and neither will the company. However, you will find that you won't get a full pension either and you won't be using your personal tax allowance.

The optimum seems to be to pay youself salary up to the NI lower earnings limit and take dividends for the rest. If you 'earn' up to the LEL then you get the NI credits but won't actually have to pay any employee's NI. Income tax will be nil or negligable because of your personal allowance. The company will be liable for employer's NI on your salary and will pay corporation tax on any profits (which are calculated after deducting expenses including your salary and employer's NI). Presently, the Small Profits Rate (ie on profits up to £300,000) is 20%. Dividends are effectively tax free if your earnings are <= basic rate tax limit because of the divi tax credits.

 

[Dishmop]

Is it worth forming a private limited company

Very simply,,, No.

 

[Silly Bee]

I might be wrong here, but

Any income is taxable.

Hobby or otherwise.

 

[Vortex]

companies don't pay national insurance. You extract the tax-paid profits from the comapany as dividends. There is no national insurance contributions on dividends and, since the company has already paid the tax, they are tax free too (so long as your total earnings remain within the basic rate tax band).

Completely incorrect - Companies, even limited companies pay NI twice, Employers NI (no limit) and Employee's NI (capped) for each employee. After the introduction of IR35 attempting to take all your salary in dividend will attract the full force of the Inland Revenue. IR 35 is a nasty piece of legislation, however there were pre-existing statutes under the 1988 finance act that allow the Inland Revenue (since the DWP were mereged with them) to make an assessment of earnings and levy an NI surcharge based on that assessment - it is then up to you to prove that the assessment is wrong. The 7 year limit for tax surcharges do not apply in these cases!

If you get the the point that you are making significant sales that could possibly be seen as income then the easiest route is to register as a sole trader. This allows you to offset expenditure, depreciation, maintainance, rent against sales income. You can also back date this against the previous years tax in the year you register.

If you get to this state you're going to need a good accountant anyway, and if they're any good they'll sort all this out for you.

 

[Dishmop]

I might be wrong here, but

Any income is taxable.

Hobby or otherwise.

Yep. You're wrong.

 

[Silly Bee]

fair enough

 

[Hombre]

Only profits are taxable, so if you keep your books with all your expenses, equipment, timber, mileage etc. and balance this against any income from sales, then it will likely be a long time before HMRC are likely to be interested in you.

I spoke to someone at HMRC some months ago and he said that an exception to this was if I started to advertise. Not quite sure what he meant there, because that would perhaps infer that I was engaged or intended to be engaged in substantial business.

If you keep your books, recording the ins and outs, then you should have no problem and will know when you are moving from hobby to business activity.

I am a registered sole trader, but my bee keeping will just be covered by my hobby records.

 

[Silly Bee]

Yep. You're wrong.

As a matter of interest.

What income isn't taxable?

 

[SixFooter]

I suspect a hobby beekeeper with a few colonies would not gain anything by setting up a company, but there must be a point where turnover is high enough to make it worthwhile.

 

[Repwoc]

Completely incorrect - Companies, even limited companies pay NI twice, Employers NI (no limit) and Employee's NI (capped) for each employee. After the introduction of IR35 attempting to take all your salary in dividend will attract the full force of the Inland Revenue. IR 35 is a nasty piece of legislation, however there were pre-existing statutes under the 1988 finance act that allow the Inland Revenue (since the DWP were mereged with them) to make an assessment of earnings and levy an NI surcharge based on that assessment - it is then up to you to prove that the assessment is wrong. The 7 year limit for tax surcharges do not apply in these cases!

If you get the the point that you are making significant sales that could possibly be seen as income then the easiest route is to register as a sole trader. This allows you to offset expenditure, depreciation, maintainance, rent against sales income. You can also back date this against the previous years tax in the year you register.

If you get to this state you're going to need a good accountant anyway, and if they're any good they'll sort all this out for you.

NI is only paid on salaries (or wages or whatever you want to call it). So if there is no salary ...

IR35 stops NI avoidance where an intermeadiary company is set up by, say, a contractor where the contractor has just one customer and therefore for all intents and purposes the contractor can be regarded as an employee of the 'customer'. If you set up a company to sell honey and bees presumably the intent is to have many customers in the traditional model of a trading entity; as a director of such a company, you couldn't be regarded as an employee one of the customers, so IR35 doesn't apply.

LOL - there is no such thing as a registry of sole traders.

I have a good accountant and she has sorted it out for me. Nothing to do with bees and honey though; that's just a (loss making) hobby to stop me going mad in the day job.

 

[psafloyd]

Is it worth forming a private limited company for selling honey and bees?
Without a limited company, are you not liable to pay tax on income from sales?

Even limited companies are liable to tax, surely. The taxman turns a blind eye to hobbyist revenues, so only a problem if you want to go into large scale production.

 

[JamesB]

I believe being a 'sole trader' would be better as a start than a limited co'

This is what i have done, as far as what is and what isnt taxable its mainly the income from the profit
As this is my first year i havent made a profit as ive spent more than ive got in return at the moment.
Being a sole trader gives you less legal issues to worry about than a limited co'
personnally i would speak with a bank's business advisor

 

[Dishmop]

As a matter of interest.

What income isn't taxable?

Certain circumstances of taking in lodgers,,, but only up to a certain amount is free of tax.