Limited companies and labour's autumn budget...

FFHillbilly

I've just done some calculations, and if I'm right I am going to close the limited company and just go back to trading as a sole trader again in April 2025.
theres currently only £200 difference, paying less tax & NI overall with the ltd co structure this year, but the extra Employers national insurance contributions are the main difference next year which add an extra £650, plus if I just go back to being a sole trader I'd do my own tax returns and save £1000/year on accountants fees

Bookworm105

FFHillbilly said:

I've just done some calculations, and if I'm right I am going to close the limited company and just go back to trading as a sole trader again in April 2025.
theres currently only £200 difference, paying less tax & NI overall with the ltd co structure this year, but the extra Employers national insurance contributions are the main difference next year which add an extra £650, plus if I just go back to being a sole trader I'd do my own tax returns and save £1000/year on accountants fees

so you are a one director company with no recourse to claiming employment allowance?

has you accountant explained the pitfalls of paying a salary high enough to incur NI - ER in the first place, rather than taking the "director's minimum" and high dividends instead

You have to be going some to make a net tax saving when measuring the corp tax saving of having a high payroll cost against the income tax rates for dividends.

FFHillbilly

Bookworm105 said:

FFHillbilly said:

I've just done some calculations, and if I'm right I am going to close the limited company and just go back to trading as a sole trader again in April 2025.
theres currently only £200 difference, paying less tax & NI overall with the ltd co structure this year, but the extra Employers national insurance contributions are the main difference next year which add an extra £650, plus if I just go back to being a sole trader I'd do my own tax returns and save £1000/year on accountants fees

so you are a one director company with no recourse to claiming employment allowance?

has you accountant explained the pitfalls of paying a salary high enough to incur NI - ER in the first place, rather than taking the "director's minimum" and high dividends instead

You have to be going some to make a net tax saving when measuring the corp tax saving of having a high payroll cost against the income tax rates for dividends.

whats NI-ER?
the Ltd Co profit is normally 30-40k if that matters

Bookworm105

FFHillbilly said:

Bookworm105 said:

FFHillbilly said:

I've just done some calculations, and if I'm right I am going to close the limited company and just go back to trading as a sole trader again in April 2025.
theres currently only £200 difference, paying less tax & NI overall with the ltd co structure this year, but the extra Employers national insurance contributions are the main difference next year which add an extra £650, plus if I just go back to being a sole trader I'd do my own tax returns and save £1000/year on accountants fees

so you are a one director company with no recourse to claiming employment allowance?

has you accountant explained the pitfalls of paying a salary high enough to incur NI - ER in the first place, rather than taking the "director's minimum" and high dividends instead

You have to be going some to make a net tax saving when measuring the corp tax saving of having a high payroll cost against the income tax rates for dividends.

whats NI-ER?
the Ltd Co profit is normally 30-40k if that matters

national insurance for EmployeRs (as opposed to NI - EE for EmployeEs)
sounds like you need to pay your accountant for detailed personal advice as a profit value on its own is meaningless in the context of personal tax.

FFHillbilly

Bookworm105 said:

FFHillbilly said:

I've just done some calculations, and if I'm right I am going to close the limited company and just go back to trading as a sole trader again in April 2025.
theres currently only £200 difference, paying less tax & NI overall with the ltd co structure this year, but the extra Employers national insurance contributions are the main difference next year which add an extra £650, plus if I just go back to being a sole trader I'd do my own tax returns and save £1000/year on accountants fees

has you accountant explained the pitfalls of paying a salary high enough to incur NI - ER in the first place, rather than taking the "director's minimum" and high dividends instead

@Bookworm105 What are the pitfalls of taking a £5000 salary then? I haven't spoken to my accountant yet but it would seem that by paying myself a salary of only £5000 I would be loosing out on getting £7570 tax free out of the company, and 20% of £7570 is £1514 which is more than the £1135 of Employers NI that I would have to pay if using the typical directors minimum salary of £12570

Bookworm105

FFHillbilly said:

Bookworm105 said:

FFHillbilly said:

I've just done some calculations, and if I'm right I am going to close the limited company and just go back to trading as a sole trader again in April 2025.
theres currently only £200 difference, paying less tax & NI overall with the ltd co structure this year, but the extra Employers national insurance contributions are the main difference next year which add an extra £650, plus if I just go back to being a sole trader I'd do my own tax returns and save £1000/year on accountants fees

has you accountant explained the pitfalls of paying a salary high enough to incur NI - ER in the first place, rather than taking the "director's minimum" and high dividends instead

@Bookworm105 What are the pitfalls of taking a £5000 salary then? I haven't spoken to my accountant yet but it would seem that by paying myself a salary of only £5000 I would be loosing out on getting £7570 tax free out of the company, and 20% of £7570 is £1514 which is more than the £1135 of Employers NI that I would have to pay if using the typical directors minimum salary of £12570

as I said, pay your accountant for advice on the totality of your personal income from all sources.

clearly you do not comprehend the tax efficiency of unused personal allowance offset against other sources of income

hint, that is the not the directors minimum salary value  

Grumpy_chap

I can't see anything from the budget that would tip the balance from Ltd Co to sole trader.
There can be other consequences of changing trading style - particularly if any customers value the continuity of the business or such like.

FFHillbilly

Grumpy_chap said:

I can't see anything from the budget that would tip the balance from Ltd Co to sole trader.
There can be other consequences of changing trading style - particularly if any customers value the continuity of the business or such like.

it was national insurance contributions, on a payroll of £12570 it's an extra £1135.
the allowance for dividends has also gone down to £500 now, it used to to much higher.
essentially Ltd co pays 19% corporation tax and 8.75% dividend tax with an allowance of only £500, and sole traders would pay 20% tax and 6% Class 4 NI with an allowance of £12570
with the Ltd company it's a bit more flexible regarding staying under the higher rate of tax but I don't see that working out long term
Doubt my customers would even notice the change too

Bookworm105

FFHillbilly said:

Grumpy_chap said:

I can't see anything from the budget that would tip the balance from Ltd Co to sole trader.
There can be other consequences of changing trading style - particularly if any customers value the continuity of the business or such like.

it was national insurance contributions, on a payroll of £12570 it's an extra £1135.
the allowance for dividends has also gone down to £500 now, it used to to much higher.
essentially Ltd co pays 19% corporation tax and 8.75% dividend tax with an allowance of only £500, and sole traders would pay 20% tax and 6% Class 4 NI with an allowance of £12570
with the Ltd company it's a bit more flexible regarding staying under the higher rate of tax but I don't see that working out long term
Doubt my customers would even notice the change too

your comparison is very poor probably stemming from your lack of knowledge of how to most effectively use thresholds other than the personal allowance, the latter being what you appear fixated on 

FFHillbilly

Bookworm105 said:

FFHillbilly said:

Grumpy_chap said:

I can't see anything from the budget that would tip the balance from Ltd Co to sole trader.
There can be other consequences of changing trading style - particularly if any customers value the continuity of the business or such like.

it was national insurance contributions, on a payroll of £12570 it's an extra £1135.
the allowance for dividends has also gone down to £500 now, it used to to much higher.
essentially Ltd co pays 19% corporation tax and 8.75% dividend tax with an allowance of only £500, and sole traders would pay 20% tax and 6% Class 4 NI with an allowance of £12570
with the Ltd company it's a bit more flexible regarding staying under the higher rate of tax but I don't see that working out long term
Doubt my customers would even notice the change too

your comparison is very poor probably stemming from your lack of knowledge of how to most effectively use thresholds other than the personal allowance, the latter being what you appear fixated on 

well I won't disagree about my lack of knowledge, care to enlighten me without just saying "speak to your accountant"?