Advice on most tax efficient way of business

baine227

Hello,

I need some opinions as to the most tax efficient way of doing a small business I am planning as either a sole trader or a registered company.

Here's the story; I have a lot of goods to sell that should make me about 800K profit, it will take me about 1-2 years to sell everything. It's a long story how I have acquired this situation, but the focus of my question is about the most tax efficient way of managing this.

If I remain a sole trader and register for self assessment then, based on the above figures, I will be on the top rate of tax at 45%. Out of my possible 800K that will leave me with 440K.

On the other hand, if I register a company I will pay only 20% corporation tax, I can pay myself 30K and pay only 20% income tax, and that will mean I've only had to pay 20% tax in total and out of my 800K that will leave me with 640K.

Clearly I would much rather have 640K than 440K. My question though if I follow the second method, once my company has made that profit if I simply dissolve the company and take that money for myself, is that money simply my asset or will there be additional taxes I have to pay as an individual again? For example, will that be classed as income and I have to pay the top rate of tax at 45% thus having made the whole process worthless to begin with and it would have been better just to do self assessment in the first place? Or is that money in my business simply mine and I'm free to take it out as my own no more tax due?

I'd really like some views from knowledgeable people who have read all this, thank you in advance for your time and replies.

Savvy_Sue

Welcome. Although I'm sure you'll get some responses here, after taking them into account I would strongly recommend that you get some 'proper' advice which you can 'rely on'. 'Proper' may mean 'paid for', although most accountants would offer you a free initial consultation. 'Rely on' means the kind you can sue the pants off the person who gave it if it turns out to be wrong.

I'm just thinking too that you may need to register for VAT. Before going any further please note I'm not an accountant and know next to nothing about VAT, but you're talking big numbers here, and a professional would know the right questions to ask you in order to work out what's best for you.

Pennywise

baine227 wrote: »

My question though if I follow the second method, once my company has made that profit if I simply dissolve the company and take that money for myself, is that money simply my asset or will there be additional taxes I have to pay as an individual again?

Yes, of course you will. The act of withdrawing money from the limited company will have tax consequences. Could be higher rate income tax or could be capital gains tax at a rate somewhere between 10% and 28%. Depends on how you take the money out of the company, i.e. dividend, payroll or capital. Given that amount of money, you'd need to appoint a liquidator to close it down if you wanted to take a capital sum. As said above, given the size of the potential profits, you need to engage an accountant sooner rather than later, not least to ensure that you properly account for VAT. If you're not a UK resident, or have a domicile other than the UK, then some kind of overseas company may well be a better option to reduce UK tax - again, you need to talk to a specialist.