Property developer - Self employed or Limited company

sdmanson

Hi there,

I am a property developer currently looking into whether its best to stay self employed or form a limited company.

If I am right in thinking:

Self employed would give me £10,000 tax free, then obviously the standard income tax.

Limited company would be corporation tax at 20% then 10% on up to £30,000 dividends per year.

My profit will range between £60,000 - £100,000.


Can anyone advise?

Thanks,
Scott

zygurat789

sdmanson wrote: »

Hi there,

I am a property developer currently looking into whether its best to stay self employed or form a limited company.

If I am right in thinking:

Self employed would give me £10,000 tax free, then obviously the standard income tax.

Limited company would be corporation tax at 20% then 10% on up to £30,000 dividends per year.

My profit will range between £60,000 - £100,000.


Can anyone advise?

Thanks,
Scott

That's a great over-simplification.
As a rule of thumb, if those are net profits then it would be best to be an Ltd but it takes a bit more admin AND given your question you should have an accounrant. Get one now, he/she wil explain the diferences and reasons between the Ltd and S/E.

PlutoinCapricorn

Most of the people who ask this question on here are bringing in much less money than you are: the standard advice is to only incorporate if and when they start earning enough to make it worthwhile tax-wise.

You now appear to have reached this point!

Do you think that your income level is sustainable, bearing in mind a possible future slump?

sdmanson

PlutoinCapricorn wrote: »

Most of the people who ask this question on here are bringing in much less money than you are: the standard advice is to only incorporate if and when they start earning enough to make it worthwhile tax-wise.

You now appear to have reached this point!

Do you think that your income level is sustainable, bearing in mind a possible future slump?

Thanks for your response.

Yes I am confident I will sustain a minimum of profits between 60-100K.

I have spoken to a couple of accountancy firms in the past couple of weeks who had suggested incorporating. However, I did some sums of my own comparing the two and came to the conclusion that, per year being incorporated would save me more money, although when I eventually come to close the company and take out the remainder of the money it would actually be pretty much on par with being self employed.

My calculations could be off though.

Am i right in thinking that the corporation tax of 20% includes advance corporation tax of 10% for dividends? Or is it a further 10% on top of the 20%?

Any other pointers are hugely appreciated.

Thanks

PlutoinCapricorn

I am a sole trader, and unlikely ever to reach your level!

Limited companies are a whole other story where accounts and regulations are concerned, so I am happy about this. I found this forum, which looks useful:

http://forums.contractoruk.com/business-contracts/25596-corporation-tax-companys-turnover-dividends.html

grey_gym_sock

there is no longer such a thing as advance corporation tax. you can pay dividends out of profits (net of corporation tax), and they magically have a 10% tax credit attached to them.

zygurat789

grey_gym_sock wrote: »

there is no longer such a thing as advance corporation tax. you can pay dividends out of profits (net of corporation tax), and they magically have a 10% tax credit attached to them.

But that's only half of the 20% that's been suffered by these funds.

le_loup

You forget the reduction in corporation tax that accompanied the abolition of ACT and the reduction in the tax credit.
Easily done as the Tories and the media only report on the latter and so the myth grows.
If you lie about something long enough, people begin the think t's true.

martinsurrey

on that sort of income incorporation will be the best thing IMO.

£10k salary from company (so no income tax for you and company saves corp. tax as its tax deductable)

Remaining £50k profit taxed at 20% so £10k tax, then £40k dividend to you, no income tax payable on first £32k and marginal rate of 25% on the last £8K, so £2k payable.

You net £48k for an average tax rate of 20%, total tax paid of £12k

If you were SE with this income you would pay a LOT more tax (Income tax alone would be £13.6k, then factor in several more £k in national insurance.)

Income in excess of £60k is taxed at 42% SE (40%IT + 2% NIC), while only 40% through dividends (20% corporation tax compounded with 25% marginal IT rate = 0.8*0.75=0.6 net income, so 40% tax)

Sholly

Hi Scott, just wondering what you decided to do in the end? I've got 1 rental property at the minute so not worth starting a limited company but hoping to buy some more soon and have been asking the same question.

Any advice gratefully received

purdyoaten

Sholly wrote: »

Hi Scott, just wondering what you decided to do in the end? I've got 1 rental property at the minute so not worth starting a limited company but hoping to buy some more soon and have been asking the same question.

Any advice gratefully received

I would doubt that Scott is still around - two posts - last one almost four years ago.