Planning my journey from sole trader to LTD

marcus2772

Hello

I am trying to plan out my business finances for now and the future. The goal is to owe the least amount of tax while gaining the most perks from being self employed.

I have an accountant but looking for a different one, so thought i'd bounce some ideas around on here until I find one.


Currently I am a sole trader working from home with no employees, income of approx £75k this tax year with approx £15k expenses.

Next tax year I will probably hit the VAT threshold and maintain similar expenses.


I'm looking into opening a private limited company as I will pay less tax overall according to this: businesscostsaver.co.uk/sole-trader-or-ltd/

As a LTD I will be able to take advantage of benefit in kind perks: Buying a £30-50k electric car through the LTD company with first year allowance, this or next tax year and paying BIK for personal use.

This will probably be a cash purchase, either after saving up enough in the LTD account or I can do a directors loan from my personal finances.

According to this website, a £30k ev car will cost between £10 and £23 per month depending on in BIK: pod-point.com/guides/business/company-electric-car-tax


Currently I have 0 pensions - after the EV is purchased I will be contributing between £10k-£30k per year into a SIPP.

My living costs are very low so I can comfortably get by on a £25k after tax income if I decided to hammer the SIPP in order to build a pension.



Can anyone give any input on if this is a good plan or if I am missing something important?

Thank you.

[Deleted User]

Go and speak to an accountant as you are now intending to change. The first consultation is usually free and most of the above queries could be addressed. One thing though, as a director of a limited company you will no longer be self employed but an employee of a ltd company which will be an entirely separate entity from yourself.

Grumpy_chap

There is nothing unusual or exceptional in the ideas the OP mentions, but select the new Accountant and structure thing in consideration of their advice.

Pennywise

Day to day bread & butter work for most accountants.  Nothing special or complicated in any of that.  If your current accountant can't help, then just move to another.

marcus2772

Thanks for the information everyone. I do enjoy planning and reading up on things before doing them.

I will seek out an accountant and go ahead with it.

DoctorStrange

One thing you may wish to ask the accountant is whether you are able to / it's feasible to operate as both self employed and as a Ltd?

Just thinking of the VAT threshold and trying to stay below that, otherwise the 20% increase to your fees might have an impact on your profitability?

Jeremy535897

DoctorStrange said:

One thing you may wish to ask the accountant is whether you are able to / it's feasible to operate as both self employed and as a Ltd?

Just thinking of the VAT threshold and trying to stay below that, otherwise the 20% increase to your fees might have an impact on your profitability?

Hic sunt dragones, or, in modern terms, VAT aggregation rules.

marcus2772

DoctorStrange said:

One thing you may wish to ask the accountant is whether you are able to / it's feasible to operate as both self employed and as a Ltd?

Just thinking of the VAT threshold and trying to stay below that, otherwise the 20% increase to your fees might have an impact on your profitability?

That's a good idea but sadly not because I offer digital services, I must charge VAT to EU+UK and probably some other countries. Brexit is great!

Grumpy_chap

marcus2772 said:

DoctorStrange said:

One thing you may wish to ask the accountant is whether you are able to / it's feasible to operate as both self employed and as a Ltd?

Just thinking of the VAT threshold and trying to stay below that, otherwise the 20% increase to your fees might have an impact on your profitability?

That's a good idea but sadly not because I offer digital services, I must charge VAT to EU+UK and probably some other countries. Brexit is great!

Not sure that I understand the reference to Brexit in the context of the VAT-threshold.  Which rules were varied that affect this?

marcus2772

Grumpy_chap said:

marcus2772 said:

DoctorStrange said:

One thing you may wish to ask the accountant is whether you are able to / it's feasible to operate as both self employed and as a Ltd?

Just thinking of the VAT threshold and trying to stay below that, otherwise the 20% increase to your fees might have an impact on your profitability?

That's a good idea but sadly not because I offer digital services, I must charge VAT to EU+UK and probably some other countries. Brexit is great!

Not sure that I understand the reference to Brexit in the context of the VAT-threshold.  Which rules were varied that affect this?

I am getting confused.

I'm not sure if I charge VAT due to hitting £85k threshold or if I have to because I am supplying digital services regardless of threshold?

After looking at my customer base, 15% are UK customers and roughly 5% are EU (VAT MOS).

The remaining are USA, Canada, Asia etc.

It's my understanding that I charge UK VAT to UK customers (15%) and Non-Union VAT MOSS to EU customers (5%).

My question is when do I charge VAT?

And if/when I do charge VAT, does that mean I can only reclaim 20% of my VAT as only 20% of my sales have VAT added?

Of course i'll be hiring an accountant but i'd like to get a laymen understanding of how it works.

Thanks.

Pennywise

marcus2772 said:

Grumpy_chap said:

marcus2772 said:

DoctorStrange said:

One thing you may wish to ask the accountant is whether you are able to / it's feasible to operate as both self employed and as a Ltd?

Just thinking of the VAT threshold and trying to stay below that, otherwise the 20% increase to your fees might have an impact on your profitability?

That's a good idea but sadly not because I offer digital services, I must charge VAT to EU+UK and probably some other countries. Brexit is great!

Not sure that I understand the reference to Brexit in the context of the VAT-threshold.  Which rules were varied that affect this?

I am getting confused.

I'm not sure if I charge VAT due to hitting £85k threshold or if I have to because I am supplying digital services regardless of threshold?

After looking at my customer base, 15% are UK customers and roughly 5% are EU (VAT MOS).

The remaining are USA, Canada, Asia etc.

It's my understanding that I charge UK VAT to UK customers (15%) and Non-Union VAT MOSS to EU customers (5%).

My question is when do I charge VAT?

And if/when I do charge VAT, does that mean I can only reclaim 20% of my VAT as only 20% of my sales have VAT added?

Of course i'll be hiring an accountant but i'd like to get a laymen understanding of how it works.

Thanks.

Your UK sales will continue to be subject to the £85k registration threshold where you have to register if UK sales are over £85k but can register voluntarily if your UK sales are under £85k.

Re EU sales, you have to register under the EU OSS scheme (for which I understand there's no threshold under which you don't have to register).

For non UK, non EU sales, you don't charge VAT whether you're registered for VAT or not.

As for recovery of input VAT on expenses, if you're registered for VAT in the UK you can reclaim all UK input VAT charged on expenses.  There'd only be a restriction if any of your sales were exempt from VAT.  Exports aren't exempt, they're usually zero rated, so you can reclaim input VAT.  NB you can't reclaim any non UK input VAT on UK VAT returns.