Many Questions on Contracting as Limited Company

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Hi Everyone

I am in the process of setting up LTD company and I have been exploring the site extensively. I have found many answers to my questions, but naturally I have ended up with even more.

Before rushing out and asking an accountant for advice, I thought I can get some initial help here as a head start. This is my first post, so bear with me if I sound a bit new to all of this.

I am in the business of training and my understanding is that clients or agencies like to interact with trainers who perform through their own companies. I suppose this is to avoid paying TAX and NI for a trainer who might be used continuously by an agency or a company.

So for this reason I like to offer my services as LTD. I am currently sole trader. This will be the first year for me, so suppose I get £30000 by the end of the year through contracts that i have no control over their timing.

The best approach seems to be paid as employee in my LTD company:

• Pay yourself up 5K salary
• Company pays 20% Corporation Tax
• Get dividend, no tax until £34600. So in my case no need to pay any TAX at all.
• No NI to pay as salary hasn't reached threshold
• Need to handle annual return/sending set of account to companies house and IR for the company
• As employee of company, you are entitled to sick pay.

Now here is my confusion:
1. I dont know when company gets paid based on contracts (could be 6 month later). If there is no money in the company account yet, especially in the beginning, how can I pay myself a salary.
2. I guess my status is no longer sole trader, but it seems that I still need to fill in a tax return, even though now I am an employee of a company. (suppose I offer all my services through my company)
3. If I never reach the minimum threshold for tax, £5K, then I don't pay TAX or NI. Since I am no longer a sole trader, I wont pay class 2 NI. So if I carry on receiving money this way through £5K salary and rest as dividend, does this mean that I would never pay a single penny towards NI. Somehow this doesn't make sense to me. So please advice.
4. As a sole trader, i just keep track of expenses and will offset them against income. The money goes from my pocket. Now in a company, how do I handle expenses. Should I use company account and pay for stuff which will automatically go against income already in the company bank account. What if I spend my own cash, and want to claim as expense. Do I get my company to pay me every month for my expenses. What if the company hasn't earned enough money to cover my expense. Is this just a formality to be sorted by the end of the year so that i dont have to worry about it now.
5. There is a mention that you get 10% tax credit on dividends for tax already paid. I was just wondering if this "10% tax" is covered by corporation tax. In other words, does the company have to deduct 10% tax from dividends "before" paying shareholders who in turn no longer need to pay the tax as it is already paid. In this case, 10% is lost in "addition" to 20% corporation tax. Am I wrong?


I hope this is not too long, but as you can tell the situation seems to be a lot more complicated than sole trader. So any help is appreciated.

Thanks