Sole Trader or Limited Company

Sole Trader or Limited Company

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Hi

I have net income of approx £12,000 annually and a full time job at £25k per annum.Based on this information,can somebody advise me what are the most tax efficient options I have for my business income which is purely services.

Sole Trader or Limited Company?

going for a limited company is what i would like to do (depends on replies/suggesstions i will get from this thread)

Thanks for your help experts.

Replies (12)

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By zebaa
02nd Nov 2013 18:00

Is...

...tax your only concern? Do you want the income now or could you wait? Why do you want to go the Co route?

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By Chris Smail
12th Nov 2013 09:39

Ltd saves the NI

But does that pay for the extra costs?

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By Saif
03rd Nov 2013 06:32

Zeeba and Chris Smail

Mainly because I want to continue trading under my existing business name.I understand from both replies that there must be extra costs for a limited company etc etc.

So,can I not register a company with my proposed business name and then make it dormant (of course to save extra costs) and continue trading as Sole Trader using that company name?

Am i correct or i have missed something?

 

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Stepurhan
By stepurhan
03rd Nov 2013 08:03

Sort out reasoning

Your question asked what the most tax efficient way of operating was. Now you say that you wish to continue using an existing business name. Registering a company in a particular name would prevent others from doing so, but is hardly a tax issue. Please could you be clear on what it is you are trying to achieve. If you have several different thoughts going on, having a face to face meeting with an accountant may be a better idea than piecemeal questions and answers here.

There will be costs from keeping a dormant company running, though obviously less than running a trading company. This is because dormant accounts would need to be filed every year, as well as a company annual return. You could use a trading name that is similar to the company name, the name being owned by you as sole shareholder, though you would not have limited on the end as a sole trader of course.

 

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By Saif
03rd Nov 2013 12:47

tax savings are more important

I will like to stick to my initial query regarding tax efficiency.

Assuming I make a net profit of £12,000 in a year + paid PAYE/NIC on 25K earnings. What arrangements would you advise than in order to make some savings either on Income Tax or NIC or preferrably both??

Thank You

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Jennifer Adams
By Jennifer Adams
03rd Nov 2013 14:31

Tax should not be your only concern - read this article ...

It gives the benefits and otherwise of becoming a company in checklist format.

Incorporation - why bother?

https://www.accountingweb.co.uk/topic/tax/incorporation-why-bother/514243

At such a low profit your tax saving will not really make it worthwhile - any tax saving will be offset by the additional accounting fees as more has to be done with a company. I usually dont advise incorporation unless the profit is about £20K - £25K preferably higher.

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By DMGbus
03rd Nov 2013 19:16

NIC savings over £500 a year
Assuming that you are of working age liable to NIC here, at 2013/14 rates, is the National Insurance Contributions saving to be had by operating as a Ltd Co (instead of sloe trader) [assumes not liable to IR35 rules]: £  140.40 - Class 2 NIC saving (52 x £2.70) £  382.05  - Class 4 NIC saving £(12000 less 7755)x9% ---------------   £  522.05   Total NIC saving (assumes dividends drawn to keep below Class 1 NIC liability)==================================================================  So compare the above NIC savings with the extra costs / admin hassle (*) of running a Ltd Co - perhaps get comparative quotes (Ltd Co vs Sole Trader) from local accountants.(*) "admin hassle" = extra filing obligations with Co's House  and HMRC - more deadlines = more chance of missing deadlines = more risk of penalties. FORMATTING ERROR - Aweb not working properly in Firefox browser ]able to type in but not save / post] so copied & pasted into Google Chrome and formatting lost.

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By euanjohn
06th Nov 2013 12:45

Limited company or sole trader

One thing which should be borne in mind is that it is much easier to offset the business proportion of expenses against income if you are a sole trader rather than a limited company.  So in your case I suspect you could offset some expenses for working at home (proportion of broadband, mortgage interest, light and heat, etc) against your income as a sole trader.  If you try to do this as a limited company you would run up against the duality of purpose argument.  Until your income gets higher I would agree with JAAdams above, don't incorporate because the NIC saving will not offset other costs.

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By pauljohnston
06th Nov 2013 13:49

Careful Euan

Some of those costs are claimable, albeit in a different way by a Company Director working from home.

Posters above have answered your questions.but I feel that there is maybe more to this than you are disclosing.

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By Vaughan Blake1
06th Nov 2013 13:58

Travel Expenses

You also need to factor in motor expenses if any and how you will claim for these under both scenarios.

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7om
By Tom 7000
07th Nov 2013 12:10

If you are married...

...and your spouse doesnt work or if they do and earn less than £34k

 

I think you need a plain vanilla partnership...split the income skip the NIC and keep your accounts fees down.

 

The only reason to haev a co, is if you want Limited liability as the p/ship above is better

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By Saif
11th Nov 2013 21:30

thanks to all

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