setting up a Ltd company to save on tax

fenwick458

I'm currently operating as a sole trader, the accounts for this year are likely to look like this: (based on doubling the first 6 months)
Gross income £79,000
Running costs £36,000
Gross profit £43,000

so as a sole trade I'm due to pay 20% tax on £3300 which is £6600,
plus Class 4 NI which is 9% of £35,044 = £3153
plus class 2 NI which is in the region of £140 per year at a guess
so total for the year being £9893

and as a Ltd Company I have figured that I should pay myself a £10,000 salary and then the rest in dividends, which would look like this
Gross income £79,000
Running costs (inc my £10,000 salary) £46,000
Gross profit £33,000

so the gross profit is liable to corporation tax at 20% which would be £6,600
plus on my personal tax return I would have to pay approx £200 class 1 NI
(employers NI would be £230 but that could be claimed back as the total employers NI for the company will still be well under the £2000 annunal allownace you get)

so total to pay is £6800 which is a saving of £3093 per year Vs being a sole trader and will presumably become even greater saving every year as profits increase and the company grows

I currently do my own accounts, but as a Ltd Co you need to have an accountant, I went to see one today and he said it would cost about £750 per year for them to do it based on the fact that I showed them all the spreadsheets and totals and he even said "you've pretty much done it all here already" and said it would normally cost more.
also tried to get me to let them do my personal tax return for £200 per year, which I think i can manage on my own.
and then also said it would cost in the region of £400 to get them to set up the limited company for me.
can anyone give me some guidance on how to set up a limited company as I think it's possible to do it myself and save £400.

also, when is it beneficial for me to set this Ltd Company up? end of this tax year? or now?

chrismac1

Pronto. You're a fool if you do it yourself, you've found a decent accountant who can do it properly. I've lost count of the number of clients I've had who have gone DIY and screwed it up. Mind you £400 is steep, my standard fee is £100 plus VAT.

So shop around.

fenwick458

where abouts are you in cumbria?

DCR555

You will also have to bear in mind that the maximum dividend you can draw without putting you into higher rate for 2014/15 is £28,089, with the notional tax credit putting this up to the £32,010.

Based on your above example this will put £4,656 into higher rate tax @ 22.5% being £1,047.

You can play around with directors loan accounts, as long as you keep then below £5,000.

If you have a partner to split the shareholdings this will help greatly, if not you may end up paying 42.5% (CT 20% & 22.5%) tax instead of 40%.

You will always save on the national insurance, so it would be worthwhile going limited asap.

chrismac1

DLA limit without incurring a benefit in kind on the interest is now £10k. In all other respects the last post was fine.

Pennywise

Does the £400 include the transfer of the sole trader business? If so, that's cheap, if not, as chrismac says, it's quite expensive. Don't underestimate the tax traps and tax opportunities of the transfer of the sole trader to limited company. Assets have to be transferred or sold/bought at market value by default which may trigger a balancing charge or additional profits in the sole trader business (at high tax), but there are some handy elections to transfer assets at lower values. You also have to consider the transfer of the goodwill, which may be beneficial, but you need to know how to value it. Get the asset and goodwill transfers wrong and it could cost you potentially thousands in tax (either pay more tax or lose some tax saving opportunity), and there's also the potential for penalties if your tax returns end up wrong because of something you've missed on the transfer. You have to remember that you are effectively "selling" the business from you as a sole trader to your new limited company - it's not a simple continuation on a change of name.