Sole Trader to Ltd Co

Sole Trader to Ltd Co - when beneficial

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For the decision to start as / change to, a sole trader versus ltd co, the 6% Class 4, no Class 2, Divi tax free £500, combine to be a game changer.

For a single shareholder / director, service only business, accounting fees sole trader £500 and ltd co £1,500. Salary at £9,100 (no EA), withdrawing all retained profit as dividend ........

I have the profit after salary and accounting fees, and before CT, £42,246. Given that's a stone's throw from higher CT, the old £30k rule of thumb as vanished.

(PS. I did look if such a post was running and couldn't find one)

Replies (21)

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By David Ex
09th Mar 2024 14:24

I couldn’t see a question but, as a general observation, I’d be nervous about changing a business structure purely for tax purposes (a) unless the benefits were significant and (b) in the months before a new government will almost certainly be elected.

I’d be making sure any advice to the client was very clear on the assumptions being made.

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Replying to David Ex:
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By Gone Sailing
09th Mar 2024 14:38

Sure, but in the heady days of the £5,000 tax free dividend, tax was a massive factor. The gap has been narrowing ever since.

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Replying to Gone Sailing:
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By David Ex
09th Mar 2024 15:32

Gone Sailing wrote:

Sure, but in the heady days of the £5,000 tax free dividend, tax was a massive factor. The gap has been narrowing ever since.

The £5,000 dividend allowance lasted two years (£2,000 obviously longer). I just think it demonstrates the dangers of focusing too much on tax in marginal situations.

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Replying to Gone Sailing:
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By DKB-Sheffield
09th Mar 2024 16:38

Gone Sailing wrote:

Sure, but in the heady days of the £5,000 tax free dividend, tax was a massive factor. The gap has been narrowing ever since.

Even with the £5K allowance, that was the point many of us considered the tax 'benefits' were 'waning'. Such an allowance was always able to be cut and unlikely to increase. It was, afterall, a sweetener to curb the dissatisfaction of the (significant) dividend tax shake-up!

There are still significant tax savings to be made through a company - particularly with grossly uneven business models (e.g. property development), or where clients wish to retain profits in the business longer term (again property development being a prime example), but, if it's static/ hand-to-mouth trading... it'll be borderline (and all affected by the next/ subsequent budget).

Other than that... limited liabilty remains one of the key factors, although... PGs for directors are now commonplace where debt/ supplies are concerned (particularly where property development is concerned).

As you can guess... my afternoon client meeting was with... a (small) property developer. Their current combined tax bills for the entire project were circa. 50% the level they would have been through SA alone (due to funds retained in the company for future development). Clearly tax on the residue will hit at a later date but... the current (short-term) cashflow is significantly better than it could have been!

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By Paul Crowley
09th Mar 2024 15:02

Always worth considering the limited liability issue.
It is a get out of being bankrupt free card. Quite important to traders wife.
Tax should not be the only consideration.
The less knowing clients can easily fall fowl of lots of things that they do not understand, VAT registration is just one of them.

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Replying to Paul Crowley:
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By David Ex
09th Mar 2024 15:33

Paul Crowley wrote:

The less knowing clients can easily fall fowl of lots of things that they do not understand, VAT registration is just one of them.

I’d chicken out in that situation.

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Replying to David Ex:
RLI
By lionofludesch
09th Mar 2024 16:02

[chuckle]

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Replying to David Ex:
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By Paul Crowley
09th Mar 2024 18:10

That fowl led to an own gowl

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Replying to Paul Crowley:
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By Dougscott
09th Mar 2024 18:46

Hope you're not feeling too hen-pecked after that foul pas, Paul.

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Replying to Paul Crowley:
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By AdamJones82
09th Mar 2024 20:24

Always make sure to give good advice so you don't come across as a turkey

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Replying to AdamJones82:
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By Gone Sailing
10th Mar 2024 09:31

I ducked out at this point

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By I'msorryIhaven'taclue
09th Mar 2024 18:25

I'm really p*ssed that just when I thought I'd cracked all this in an all-singin' all-dancin' spreadsheet, the goalposts have shifted so quickly!

I suspect the outcome when I get round to revising it for this latest deviation will be that self-employment will come out top-of-the-table from a tax perspective, at least for basic rate payers and some forty-percenters with children. We'll see!

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Replying to I'msorryIhaven'taclue:
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By Paul Crowley
09th Mar 2024 19:11

But the changes post election could still mess it up

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Replying to Paul Crowley:
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By I'msorryIhaven'taclue
10th Mar 2024 08:51

Shifting sands!

If slashing NI rates to sweeten voters is the sum total of Rishi's "clear plan" then I'm voting Reform Party!

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Replying to I'msorryIhaven'taclue:
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By Paul Crowley
10th Mar 2024 13:54

I find the NI Bribe completely distasteful.
Increased to'fund the NHS'
Reversed (But not dividends increase)

Wait! Election coming, give away 4% to all employees, 3% to the self employed and nil to the rest.

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Replying to Paul Crowley:
RLI
By lionofludesch
10th Mar 2024 14:05

Paul Crowley wrote:

I find the NI Bribe completely distasteful.
Increased to'fund the NHS'
Reversed (But not dividends increase)

Wait! Election coming, give away 4% to all employees, 3% to the self employed and nil to the rest.

I don't want a tax rebate. I just want some decent public services before the whole infrastructure falls apart.

And I definitely don't need a vanity project which will get me to a place I don't want to go to ten minutes quicker than I can at the moment.

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Replying to lionofludesch:
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By FactChecker
10th Mar 2024 14:25

Ah, the Oblivion Express ... Brian Auger reached that conclusion 54 years ago!

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
12th Mar 2024 10:28

lionofludesch wrote:

And I definitely don't need a vanity project which will get me to a place I don't want to go to ten minutes quicker than I can at the moment.

They're widening the M62?

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Replying to I'msorryIhaven'taclue:
RLI
By lionofludesch
12th Mar 2024 18:15

I'msorryIhaven'taclue wrote:

lionofludesch wrote:

And I definitely don't need a vanity project which will get me to a place I don't want to go to ten minutes quicker than I can at the moment.

They're widening the M62?

It was closed on Saturday. Some lunatic driving up the wrong carriageway. We'll never know the tragic story behind that, I suppose.

Luckily, only the eastbound was closed and it didn't affect us on the way to the match (on BBC i-player, if you're interested) but it was still closed when we came back and we had to cut through Dewsbury.

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By Matrix
09th Mar 2024 19:40

P&L on the public record versus perception (and maybe MTD)

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By Gone Sailing
10th Mar 2024 09:39

There are other things on the list:
> new training
> use of home apportionment, particularly if renting and working from home
> branding
> self filing
And yes (@ Matrix), MTD and new CH filing regs

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