Finance Questions and Answers

How can I get my business off the ground with low financial input?

Answer:

Well it depends on what your business actually is. You need to set up accounts with your suppliers if that is applicable so you are given two months (at a push) grace to pay for them. If you have no suppliers then your costs are not as high. One of the best and most instant ways of funding a new start up is credit cards. Take yourself a new one out that gives you 0% interest and make sure you pay back each month more than the minimum amount.

How can I grow my business using financial input from investors without giving too much of the company away?

Answer:

The problem is not in giving bits of the company away, it’s in finding an investor who believes in you. It’s not as easy as it sounds. Don’t believe all the media hype about investing angels. They are ruthless businessmen who want to rape you. The worst a bank will do is molest you.

How can I pay as little as possible to number 11?

Answer:

Quite simple. Go read IR 20: Residents and non residents.

What’s the best chance of securing a company car on a newly formed Ltd company where both directors have seen better days in credit history terms?

Answer:

Simple answer.

Go take a vehicle out over 3 years until your credit history has fallen out of the woodwork. Companies will be happy to deal with you as long as you are honest. After one year you have repaired your history, so go transfer your vehicle to a company that is 2% cheaper. ie on a 15K vehicle you could save £25 per month

Salary or dividend?

Income tax is a progressive tax

That means that as the total amount of your earnings increases, you will pay a higher rate of tax. Most people have a personal allowance of approximately £5200. This is the amount of money that they can earn in any tax year before they start to pay income tax. Any additional earned income will start to be taxed at 10% and as the amount of income increases, so you will start paying tax at 22% and ultimately 40%. In addition to income tax, an employee also has to pay National Insurance. This is at the rate of 11%. The employer (the company) also has to pay National Insurance on any salaries or wages that are paid. The employer’s rate of National Insurance is 12.8%.

If the company pays you a dividend, that dividend is subject to income tax at 10% provided you are a basic rate taxpayer. The exact amount of income tax will depend on your position and also on the total amount of the company profits. But, in theory, taking a dividend can be much more tax efficient than taking a salary, mainly because you will not be paying any National Insurance.

For most people, a salary of approx. £7,500 in any tax year will make certain that they are using up their personal tax allowance and taking advantage of the lower rates of tax and National Insurance. This amount of salary will also mean that you are paying sufficient National Insurance to maintain your entitlement to a basic state pension. It also takes into account the minimum wage requirements.

So, you might think that to minimise your tax you should simply take £7,500 as a salary and that any other money should be paid to you as a dividend. This is fine, if your only objective is to minimise your tax payment.

Essentially, what you are looking to do is to take sufficient salary in each tax year so as to use up your personal allowances and to give you sufficient scope for tax relief on any contributions to a personal pension plan. On top of that, you should take dividends from the company with the intention of remaining a basic rate taxpayer and at the same time, delaying the payment of tax.