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  • FIRST POST
    • OrangePurple
    • By OrangePurple 12th Jun 19, 12:04 PM
    • 2Posts
    • 0Thanks
    OrangePurple
    Worth going from sole trader to limited company on 70k profits a year?
    • #1
    • 12th Jun 19, 12:04 PM
    Worth going from sole trader to limited company on 70k profits a year? 12th Jun 19 at 12:04 PM
    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?
Page 1
    • ANDY597
    • By ANDY597 12th Jun 19, 1:01 PM
    • 390 Posts
    • 283 Thanks
    ANDY597
    • #2
    • 12th Jun 19, 1:01 PM
    • #2
    • 12th Jun 19, 1:01 PM
    have you calculated with taking minimum wage and dividends.


    Dividend tax and corporation tax?

    • 00ec25
    • By 00ec25 12th Jun 19, 1:21 PM
    • 8,590 Posts
    • 8,481 Thanks
    00ec25
    • #3
    • 12th Jun 19, 1:21 PM
    • #3
    • 12th Jun 19, 1:21 PM
    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
    • By OrangePurple 12th Jun 19, 3:09 PM
    • 2 Posts
    • 0 Thanks
    OrangePurple
    • #4
    • 12th Jun 19, 3:09 PM
    • #4
    • 12th Jun 19, 3:09 PM
    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
    • By Pennywise 12th Jun 19, 3:38 PM
    • 12,035 Posts
    • 23,675 Thanks
    Pennywise
    • #5
    • 12th Jun 19, 3:38 PM
    • #5
    • 12th Jun 19, 3:38 PM
    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?
    Originally posted by OrangePurple
    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
    • By polymaff 12th Jun 19, 4:26 PM
    • 2,961 Posts
    • 1,365 Thanks
    polymaff
    • #6
    • 12th Jun 19, 4:26 PM
    • #6
    • 12th Jun 19, 4:26 PM
    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.
    Last edited by polymaff; 12-06-2019 at 5:02 PM.
    • 00ec25
    • By 00ec25 12th Jun 19, 5:39 PM
    • 8,590 Posts
    • 8,481 Thanks
    00ec25
    • #7
    • 12th Jun 19, 5:39 PM
    • #7
    • 12th Jun 19, 5:39 PM
    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.
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