Trading through LTD company

[Mikey12345]

Hi,

I have been trading as an individual for many years and I am quite successful.

My trading account is getting quite large now and have decided to set up a ltd company that I will use to trade through. I am doing this for three reasons:-

1. To organise the taxation in a simple way. As the account is quite large it seems that the personal capital gain allowance is irrelevant.

2. Pay myself through PAYE.

3. To have an accountable track record so i can borrow or approach investors.

I have been reading that it is more preferable to trade as an individual. Considering the above am I doing the right thing. Also is there things I can do to improve things.
It would be nice to hear from anyone that is doing the same and would like to share some of their experiences.

Thanks,
Mikey

 

[forker]

The best solution is to receive paye from a full-time job ( of your choice). Then trade through spread betting. This way you keep the taxman thinking the payee is your main income and any trading profits are tax free. The key to setting this up is finding a job that allows you the freedom you currently enjoying. Yo could setup an ltd and freelance in a an industry to keep the taxman happy but it needs to be believable income or else your trading profits are considered income and subject to tax.
Alternatively you could proceed the way you plan but you are subject to income tax

 

[Mikey12345]

Thanks for the reply,

My issue is not with the tax. As i trade us equities spreadbet is not an option. Im trying to build a name for myself. I would like my results to be transparant. Tha corporation tax is basically the same as personal tax. When you have a significant amount you can liqudate the company using the entrepreneur relief or move to monaco and pay youself a large dividend tax free.

 

[scose-no-doubt]

but you'll essentially be paying CT at 20 or 30 and then entrepreneurs at 10 until a mil (if we're talking big money here).

your best options depend entirely on how much you're making.

 

[kimo'sabby]

Hi,

I have been trading as an individual for many years and I am quite successful.

My trading account is getting quite large now and have decided to set up a ltd company that I will use to trade through. I am doing this for three reasons:-

1. To organise the taxation in a simple way. As the account is quite large it seems that the personal capital gain allowance is irrelevant.

2. Pay myself through PAYE.

3. To have an accountable track record so i can borrow or approach investors.

I have been reading that it is more preferable to trade as an individual. Considering the above am I doing the right thing. Also is there things I can do to improve things.
It would be nice to hear from anyone that is doing the same and would like to share some of their experiences.

Thanks,
Mikey

You may as well set up as a sole trader. I wouldn't want you running my cash through your company, not because of your trading skills but because of the liability involved.

 

[Mikey12345]

Thanks, but the my company will only its own money. I have being trading for 15 years quite successfully and am being frustrated watching managers perform badly but still being compensated handsomely. I am so confident of my performance it makes sense be transparent. What I really would to know if there are anything that I should be aware of.

 

[Mikey12345]

Sorry my typing is bad

 

[donaldduke]

Setting up a trading account for a Ltd with someone like IB is easy.

First incorporate your company, costs between 50 and 150 quid, if you doing a standard setup.
Speak to an accountant about how to allocate shares for best tax planning.
Some traders use a Ltd/LLC hybrid to supposedly reduce tax, no idea how that works.. you may or may not want to allocate some shares to your wife if you have one.

Once you setup the Ltd, open a bank account on the high street, under no circumstances mention to the bank that you plan to manage money for people, even in the future, tell the bank the comany only ever plan's to manage its own money or the money the shareholders loan to it.

Once you have the Ltd co bank account setup opening an account with someone like IB is easy. Ask the bank to send you a statement straight away as you will need it to open the trading account.

As for PAYE, best to take most of your 'salary' as dividends. Saves having to hander over NICs.

 

[donaldduke]

One thing to bare in mind is you might get classed as a closed investment company, instead of a trading company.

This will mean you will pay corporation tax at the soon to be 24% rate (currently it is a bit higher but is dropping 1% every year until it hits 24%, i think in 2013). Also so you wont be able to offset costs against tax.

Ofcourse if you make more than 300K a year, you will pay that high rate corp tax even if you are trading company.

 

[Rainmaker]

Hi

I have done this, with the help of a local accountant who has done my structuring. I don't want to advertise a particular firm here, so let me know if you want an introduction.

 

[Mikey12345]

Thanks Rainmaker,

I have allready Incorporated and have a bank account.One more reason for trading through LTD is that your mindset changes because now this is a real business. How do you know what class your company is?

 

[Rainmaker]

Well - that's not as easy as it should be and often comes down to what your local tax office says. My accountant has a good relationship with them and has done the pleading and begging on my behalf. Good to be able to offset costs as well.

 

[donaldduke]

Thanks Rainmaker,
How do you know what class your company is?

There are no black and white tests, if the tax man disagrees with you then it is up to the independent tribunal and courts to decide.

If you make lots trades a year (100s or thousands a year), using a 'deliberate and organised scheme of profit-making'
Then you can probably claim to be a trading business.

Also if you earn the bid/ask spread on your trades where possible that will help too.

If you dont do frequent trading or are very 'unorganised' then you probably going to be seen as an investment business.

 

[donaldduke]

In Cooper v C & J Clark [1982] 54TC670, Nourse J examined the judgement in the Lewis Emanuel case and extracted the following principles for a company:

marketable securities, being income producing assets usually capable of increasing in value, are prima facie purchased and sold by way of investment and not by way of trade; a series of purchases and sales may sometimes, if carried out pursuant to a deliberate and organised scheme of profit-making, amount to a trade;
it is easier to characterise a series of purchases and sales as a trade in a case where they are made by a trading entity as opposed to an individual;
in a case of a trading entity that characterisation is more easily made where the purchases are substantial in relation to its other activities, all the more so where they are of frequent occurrence and extend over a long period of time.
It is sometimes helpful, although not decisive, to ask whether a series of sales and purchases is speculative or not. The questions of why it is sometimes helpful is that the answer may throw light in one direction or the other, but it is not decisive because according to the circumstances either a trade or a course of investment may be speculative.

http://www.hmrc.gov.uk/manuals/bimmanual/bim65701.htm

 

[Mikey12345]

I guess if you want to manage other peoples money this is agreat way to show your performance. Also it demonstrates that you have a disiplined business approach. Has anyone been sucessful in moving on from the limited company and is trading a fund?

 

[scose-no-doubt]

One thing to bare in mind is you might get classed as a closed investment company, instead of a trading company.

This will mean you will pay corporation tax at the soon to be 24% rate (currently it is a bit higher but is dropping 1% every year until it hits 24%, i think in 2013). Also so you wont be able to offset costs against tax.

Ofcourse if you make more than 300K a year, you will pay that high rate corp tax even if you are trading company.

He'll only pay higher rate on profits above 300k (if he only has 1 company anyway).

That's why I'm saying that he need to have a sit down with the accountant and decide what he's likely to make first. Best option will be dependant on that.

 

[Mikey12345]

My plan is quite simple pay youself a very low paye salary let the profits build up. When you have a large enough amount you either pay 10% cgt on 5mill (Entrpreneur relief) or move to a tax haven and pay yourself a dividend. I know that spreadbetting seems to be the ideal choice but you cannot build a serious business with a spreadbetting firm. Also, the main idea is to work 100% for the business and the tax rules for spreadbetting are unclear if it the main source of income.

 

[scose-no-doubt]

ER is 10m not 5m.

You will pay an effective rate of 20-30% corporation tax on all profits every year while builing your "pot" for ER disposal making your total tax (profits x 20-30%) + (profits - tax) x 10%

PAYE would be a waste of time and you should pay dividends (outside of a nominal salary to utilise your tax free allowance)

You need to do all sorts to a memorandum and articles of association to enable trading as a principle activity.

I don't think you could spread bet through a limited company.

If you're serious and have big money, it may be worth speaking to someone who can set up and administer an offshore trust through which you could manage the "pot".

 

[Rainmaker]

Don't count on getting ER on this kind of business, as it won't work. Also, HMRC have enough grey matter to see through the deferred income idea. I have explored some of these with my accountant. Also, a company can spread bet, but will pay tax on the profits.

I seriously suggest getting some good advice if you want to go down this route. It was well worth it for me.

 

[BeginnerJoe]

If you trade successfully, then there's no need to make a name for yourself because the name will make it all by itself assuming your wealth will continue to grow at an unusual rate. If you are confident of your skills, I don't see the point of trading other people's money, and be answerable to them. As for track record, just move a few hundred mills of your winnings to your bank account, print out a statement and take it to the job interview. They should be plenty impressed with that track record. If not they will offer you a preferential rate so that you could trade through them. You will win whichever way it turns out. Money is a very useful tool. So use it.