Worth going from sole trader to limited company on 70k profits a year?

OrangePurple

Doing all of the calculations it will save a bit over 1k a year, but all of that will just be taken up by accountant fees.

So unless I'm missing something I can't see why I would benefit much from it? I don't need any loans, I guess it would be useful to be a different legal entity just encase something goes wrong, but that's unlikely as it's just me giving services in the creative industry. A bit more could be claimed on expenses, but not a great deal more for me.

With talk of the higher rate tax bracket increasing - I'm assuming this would make it even less advantageous?

ANDY597

have you calculated with taking minimum wage and dividends.


Dividend tax and corporation tax?

00ec25

for 70k I would want to see your calculations before agreeing you are right because as a pure profit figure than is well into the level at which a company should be more tax efficient so I doubt you are correct.

OrangePurple

Sure calculatons

Yearly Monthly
Limited Company
Profit £ 70,000.00 £ 5,833.33
Your Salary £ 12,500.00 £ 1,041.67
Employer's NI £ 533.78 £ 44.48
Taxable Profit £ 56,966.22 £ 4,747.18
Corporation Tax £ 10,823.58 £ 901.97
Maximum Net Dividend £ 46,142.63 £ 3,845.22
Personal Tax
Your Salary £ 12,500.00 £ 1,041.67
Employee's NI £ 464.16 £ 38.68
PAYE Tax on Salary £ 0.00 £ 0.00
Gross Dividend £ 46,142.63 £ 3,845.22
Tax on Dividend £ 5,471.36 £ 455.95
less Tax Credits £ 0.00 £ 0.00
Student Loan £ 0.00 £ 0.00
Total Take Home £ 52,707.12 £ 4,392.26



Gross Income
Taxable Income
TaxBREAKDOWN
National Insurance
Take Home
Yearly
£70,000.00
£57,500.00
£15,500.00
£5,364.16
£49,135.84


ok so its 49.1k sole trader vs 52.7k limited company taking a wage of 12500, then paying employers NI and corp tax.

When you add in the extra hassle aginst my day rate and accounting fees, there doesn't seem to be too much in it. Unless I've got it wrong?

Pennywise

OrangePurple wrote: »

When you add in the extra hassle aginst my day rate and accounting fees, there doesn't seem to be too much in it. Unless I've got it wrong?

Your figures show a saving of £3.6k on the raw figures. It may be higher or lower depending on how your car is treated and maybe other expenses too.

Surely you're accountant isn't going to charge thousands more? I'd say an extra £500-£750 is reasonable.

If you don't want to save £2k/£3k per year, fair enough I suppose.

Also, your savings could be a whole lot more if you don't need to draw it all out as dividends. Or is there any scope in your spouse being a director/shareholder too to reduce your h/r exposure?

polymaff

It is more than your calculation which should be taken into account.

A phone call lost me the race to say "spread out the dividend to another, alphabet, shareholder who has some basic rate headroom" and "note that you're making thousands extra whilst the accountancy costs are hundreds" !

A company gives you greater control of when your income is taxed.

It can also get you business that might be refused to a sole trader for fear that you may be classed as an employee of that business, as well.


EDIT: Incidentally, try a salary of £8,632 in your calculation.

00ec25

as already pointed out the company net pay would be £3,571 higher than sole trade, more than enough to cover accountancy and admin costs


you could increase that by another £250 by taking a salary at the NI threshold, not the personal tax threshold so increasing the amount available as dividends.


overall though, as pennywise says there are many other variables which would need to be considered for a true picture, but the principle remains, with profits of that level a company is more tax efficient.