Advice from Any Accountants

jaype

Hi - just wondering if this was right. Spent two hours with an accountant this morning trying to sort through our situation... Basically, I am self employed, earnigs about 16k this year before allowances and deductions, but looks like it will rise to 24k next year (only work part time and had maternity leave part of this tax year). Now for the complex part - my husband is employed (25k) and also rund an online business that he started in January. We thought it might make a little money but it went beserk and will have made (top estimate) 31k by April 5th and end of tax year. We never setu up a limited company as we didn't know we had to immediately. so, accountant says we have to do this now (sales will tail off to about 1k a month I expect by about July after everyone who wants the product has bought it). husband will be launching version 2 of product in about 18 months to 2 years and it may bring in similar sums but if we don't need it beforehand, accountant says company can be dormant if sales drop after April.
But - we have to pay 22% tax on the 31k. I have had a salary deducted for the admin, PR and so on that I do, and the expenses are minimal. Out tax bill is therefore to be around 6k :eek: . Does this sound right? Any advice very welcome, plus suggestions about how to cut it further. I'm so annoyed we can't form the company retrospectively - how were we to know it would do so well?

WHA

Sounds about right, give or take, but I think there will also be class 4 NIC at a rate of a further 9% of profits, on top of the 22% tax, so the total tax and NIC bill may be higher than estimated.

You don't "have to" form a limited company though - it is your choice to either continue as a sole trader/partnership or form a limited company. There are pros and cons with trading through a limited company which should have been explained by your accountant.

No, you can't transfer your business to a limited company retrospectively - a limited company is a separate legal entity - if it didn't legally exist, then how could it have traded? I think you have sought out accountants advice a little too late and have to bear the consequences I'm afraid.

If you are sure that transferring to a limited company is the best way, after having properly considered the pros and cons, then you can do that almost immediately, but realistically, it will take a few weeks to set it all up, especially bank and credit card accounts, so you have left it too late to achieve much this tax year, and the best you can do is get it up and running as soon as possible to minimise the taxes.

Make sure though that you are claiming all the expenses possible against the income - cost of sales, website costs, broadband connections, computers, proportion of home running costs, business mileage - you'll be surprised how much you can claim if you give it some serious thought.

jaype

We went through all this - unfortunately barring web hosting, computer equipment, desk and chair and a bit of software it is all done at home with no outside visits and so forth. I also have to spend a bit on advertising before April otherwise he'll be about 1k into the 40% band - rather the business benefits than the tax man! As for the pros and cons - I know the accountancy fees will rise to about 1500 for the company. However, orders will tail off and it will also allow divi's to be paid to both of us (I only work 2 days per week so I'd be very shocked if I could earn more than 24k next year). The only issue is that we'd like the money to be available for a house purchase in about 9 months to a year, so missing out on having to gradually draw down this 31k may not have been all bad?