Hi. I hope someone can help answer a few questions for me.
My husband is in full time employment on a salary of £15000 and get taxed etc as normal and therefore used up his personal allowance.
He is setting up own company and has won a contract for ground maintenance which will pay approximately £15000 in profit for the year.
Trying to decide whether to go sole trader or limited company. But noting difference in costs versus savings vary between the two; is there much difference to the tax and Ni savings if we choose ltd or sole especially as employed job uses all his personal allowance?
Can we claim all profit as dividends and take no salary as he pays tax and Ni in other job and does he get any personal allowance?
Many thanks
Replies (13)
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2013/14
Self-emp take home after income tax and both Class 2 & 4 NI would be £11203.
Dividend take home after the provision for corporation tax through an LTD would be £12000 (no salary needed)
£797 saving through LTD - likely to be eaten into heavily through additional accountancy fees as LTD's more complex to run.
On that level of income... Would suggest sole trader...
When turnover gets to approx £35000 then suggest limited co.
As always obtain protective insurance.
This is my 'rule of thumb,.
Don't forget
You should look at the household position too, are you in employment and using your personal allowance? if not then Ltd Co could benefit more. I would personally go down the ltd Co route and the accountancy fees would most likely be offset at the very least by additional expense claims that they would identify, leaving the tax benefit intact in your pocket.
Who " won a contract"?
In who's name is the contract which has already been won - your husband's or the new limited company? The client may already have decided who it has contracted with so you may need to amend the contract!
@ Sheepy
What benefit does his wife not using her personal allowance have?
His dividends are going to be in the BRB so no tax anyway.
Pay her a small salary for the bookkeeping? Won't save that much.
I think the advice from platform and Mikeyban is more accurate.
Contract
Gary's advice is relevant too. If the contract can't be altered, it may be a done deal.
Given that it is groundworks I would say it may still be worth looking at the limited company route purely for the protection it offers, even if it costs you slightly more when you factor in the accountancy fees. If the main contractor goes bust then you could end up personally liable for some costs (labour or materials) so certainly worth thinking about more than just the tax saving.
Ground Maintenance
Given that it is groundworks I would say it may still be worth looking at the limited company route purely for the protection it offers, even if it costs you slightly more when you factor in the accountancy fees. If the main contractor goes bust then you could end up personally liable for some costs (labour or materials) so certainly worth thinking about more than just the tax saving.
The OP said Ground Maintenance, not Groundworks.
...and on the other hand....
There may be employment status issues 'winning a contact' making SE the safer option.
I'll say again, at £15k net profit it's really not worth the hassle of LTD unless there is a real need to do so.
Assumption of costs
All valid points above.
What I will say however is that there is an assumption that the jump in accountancy fees from SE to LTD is huge. Not always the case - the increase could be smaller than you anticipate and from a tax point of view alone could provide an overall benefit.
The £797 saving above might only be eat up with £300 extra in accountancy fees producing an overall benefit, ignoring as well class 2 liabilities, of around £500 per year.
I'd also say that there might be more generous allowances for example with subsistence rates that an employee can claim under a limited company model rather than being self-employed, assuming that these allowances are claimable in the first place.
Even on a relatively low level of income, IR35 implications aside, it could be very beneficial to down the limited company route. The answer, to my mind, is that it depends!
Alter
Unless you can alter the contract, you're stuck with the limited company.
Am I reading correctly that he hadn't actually formed the company before he got the contract in its name ?
Ltd co
benefits can be slightly overstated....from a pure taxation point of view platform hits the spot. The tax saving vs hassle factor at a level of £15,000 is minimal, so you need to consider the other factors, limited liability, bookkeeping requirements etc