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I spoke to an accountant this week, and she advised sole trader is probably the easier/cheaper route to go, but from what I have read up so far it appears to be the more costly tax wise etc.
Any pointers/advice/pros and cons please list with reasons.
Thanks
The biggest advantage is that if you go bust your personal property is safe.
If you're business is solidly financed then I would stay sole trader, personally speaking
The biggest advantage is that if you go bust your personal property is safe
Also worth considering the situation where you get sued for something that's out of your control - such as the situation where you're hosting other people's content, there's some legal risk there - and the other party wins.
That could force you into bankruptcy, and if you're a sole trader then there go all your personal assets.
If you trade as a limited co then the house is safe (except in situations where you behave improperly, such as if you commit fraud).
hth, a.
If you set yourself up as a limited company then all profits that the company earns are subject to corporation tax. Income tax only becomes an issue when you pay yourself a salary and/or a dividend from your company’s earnings.
The corporation tax rates are as follows:
Profits of £0 to £10k - starting rate of 0%
Profits between £10,001 and £50k – small companies’ rate (19%) less marginal relief
Profits between £50,001 and £300k – small companies rate of 19%
Profits between £300,001 and £1.5m – main rate (30%) less marginal relief
Profits over £1.5m – main rate of 30%
So you can see that as a limited company your first £10k’s profits are tax free – assuming that you don’t pay yourself a salary or dividend. You don’t pay tax at 30% until your profits hit £1.5m.
Any salary that you pay yourself will reduce your profit and consequently your corporation tax liability, however you will have to pay income tax on it. Note that income tax is only due on any salary/dividend that you pay yourself and not on the profits of the company.
If you choose to do business as a sole trader all of your profits (less your personal allowances) will be subject to income tax. The rates are as follows:
Starting rate 10% on profits of 0 - 2,090
Basic rate 22% on profits of 2,090 - 32,400
Higher rate 40% on profits over 32,400
So using a £100k figure as a limited co you’d pay CT at the rate of 19%, compared to the 40% in income tax you’d pay as a sole trader.
So quite often it is sensible to work as a sole trader until your income becomes such that it is more worthwhile to go Ltd ..
Obviously the tax benefits are one of the main reasons to go LLC, however the cost of the accountancy greatly increases.
From the initial advice that we have received from various accountants, I may begin by going the sole trader route and see how this pans out.
I will potentially need to access the money on a regular basis, so this has also played a part in the decision.
Income tax due on a dividend?
I was sure the dividend is already taxed as a company profit - eg taxed as a corporation tax.
Eg Say you pay yourself £4,000 Salary - no tax (or NI) as below your personal allowance and the rest in dividends then you dont pay income tax - the company would already have paid the corporation tax on the dividend.
This does become more complicated if the dividend puts you in a highest rate tax band though.
Of course - check this out with your accountants - dont rely on my post as correct - I am not an accountant - just what I was led to believe.
Eg Say you pay yourself £4,000 Salary - no tax (or NI) as below your personal allowance and the rest in dividends then you dont pay income tax - the company would already have paid the corporation tax on the dividend.
I'm in the States, so I don't know all the aspects of the U.K. tax system, but I know in the U.S. it's the same thing- corporate dividends are taxable.
If you are a normal rate taxpayer then no - the company has already paid tax as it is profit the company has paid tax on.
So you recieve it Net.
That is my understanding - just trying to make it clear(understandable to me too) that double taxation does not take place - eg you dont get tax at corporation rate and then again income tax on the dividend.
Taxes make my head hurt when I try to understand what my accountant does.
Taxes make my head hurt when I try to understand what my accountant does.
If you are a normal rate taxpayer then no - the company has already paid tax as it is profit the company has paid tax on.So you recieve it Net.
I think you're right, but (as you say) that's only the case if you're a normal rate taxpayer. I think.
hth, a.
Eg Say you pay yourself £4,000 Salary - no tax (or NI) as below your personal allowance and the rest in dividends then you dont pay income tax - the company would already have paid the corporation tax on the dividend.
While true this is likely to raise a few suspicions in the Inland Revenue and can also mean problems if you want a loan at any stage (dividends are often not counted as a source of income for mortgages, bank loans, credit cards etc).
Which ever way you decide to go, good luck.
Otherwise revenue WILL come a knocking, there is a an Inland revenue ruling on whats ok and whats not in this situation.
It think its called IR57 but cant be sure.
I trust my accountant - after all it is his job :)
>>>>Otherwise revenue WILL come a knocking, there is a an Inland revenue ruling on whats ok and whats not in this situation.
Indeedy - therefore best to speak to an accountant.
Actually there is a very similar thread going on here:-
[webmasterworld.com...]
Eg Say you pay yourself £4,000 Salary - no tax (or NI) as below your personal allowance and the rest in dividends then you dont pay income tax - the company would already have paid the corporation tax on the dividend.While true this is likely to raise a few suspicions in the Inland Revenue
I'm not sure about that - I was under the impression that it was standard practise for this type of company... the accounting advice I'm getting is that it's OK with the IR.
can also mean problems if you want a loan at any stage (dividends are often not counted as a source of income for mortgages, bank loans, credit cards etc).
This is definitely the case.
It think its called IR57 but cant be sure
You're thinking of IR35 maybe? This only applies in certain circumstances - it's intended to catch contract workers (mainly IT contract workers) who do all their work for one client (at a time), but used to be able to bill as a ltd company and pay themselves in dividends, exactly as we've been discussing. IR35 stops them from doing that by treating them as employees, but it doesn't apply if you have multiple clients at the same time:
[hmrc.gov.uk...]
[hmrc.gov.uk...]
If you can answer ‘yes’ to the following questions, you would probably have been an employee of your client for the contract in question and therefore within the new rules.Do you work set hours, or a given number of hours a week or a month?
Do you have to do the work yourself rather than hire someone else to do the work for you?
Can someone tell you at any time what to do, when to work or how to do the work?
Are you paid by the hour, week or month?
Can you get overtime pay?
Do you work at the premises of the person you work for, or at a place or places he or she decides?
Do you generally work for one client at a time, rather than having a number of contracts?If you can answer ‘yes’ to the following questions, you would probably not have been an employee of your client and therefore outside the new rules.
Do you have the final say in how you do the work for the client?
Can you make a loss on the contract?
Do you provide the main items of equipment you need to do the job for the client, not just the small tools many employees provide for themselves?
Are you free to hire other people on your own terms to do the work you have taken on?
Do you pay them out of your own pocket?
Do you have to correct unsatisfactory work in your own time and at your own expense?
Do you have a number of customers at the same time?
Company Directors dont have to pay themselves minimum wage.
I think that's right, as long as they don't have a written contract of employment (I'm told).
best to speak to an accountant.
absolutely.
best, a.
