Is My Accountant Trying It On?

[JonnyKumquot]

Hi. First of all apologies as I'm not the most tax literate of people. I'm looking into the possibility my accountant is being a bit naughty. He recommended I go Limited back in 2012. I have to admit I have been scratching my head ever since! I get where the savings are made in tax but for starters he doubled his fee from £450 - £900. He's a chartered accountant but others I've talked to pay much less. Also, I don't understand why he told me to set my salary at the personal allowance level, whereas it seems everybody else set up as a Ltd Co pays under the employers N.I threshold which is currently around £3000 less. So I am paying £400+ per year in N.I. I also pay £230 a year in payroll fees to a 3rd party (which my accountant referred me to). The only change since 2012 is that my wife was on the payroll then, but hasn't been since 2018.

I understand that with a lower salary my corporate tax liability would have been higher but with the extra fees and N.I I was £670 worse off last tax year with all things taken in consideration.

There is no doubt that, with profits of around 30k, I would be better off as a sole trader. I do believe I saved tax in the early days but haven't for maybe 4/5 years (I know I've been slow on the uptake here). I want to understand if there could have been a legit reason for my accountant to advise me to pay myself above the N.I threshold. Many thanks in advance.

 

[UK Contractor Accountant]

want to understand if there could have been a legit reason for my accountant to advise me to pay myself above the N.I threshold.

yes due to the availability of claiming employment allowance salary up to the tax free personal allowance was the most tax efficient salary level back in 2012.

The EA rules have changed along the way so it might not be the optimal salary level now.

 

[MyAccountantOnline]

Hi. First of all apologies as I'm not the most tax literate of people. I'm looking into the possibility my accountant is being a bit naughty. He recommended I go Limited back in 2012. I have to admit I have been scratching my head ever since! I get where the savings are made in tax but for starters he doubled his fee from £450 - £900. He's a chartered accountant but others I've talked to pay much less. Also, I don't understand why he told me to set my salary at the personal allowance level, whereas it seems everybody else set up as a Ltd Co pays under the employers N.I threshold which is currently around £3000 less. So I am paying £400+ per year in N.I. I also pay £230 a year in payroll fees to a 3rd party (which my accountant referred me to). The only change since 2012 is that my wife was on the payroll then, but hasn't been since 2018.

I understand that with a lower salary my corporate tax liability would have been higher but with the extra fees and N.I I was £670 worse off last tax year with all things taken in consideration.

There is no doubt that, with profits of around 30k, I would be better off as a sole trader. I do believe I saved tax in the early days but haven't for maybe 4/5 years (I know I've been slow on the uptake here). I want to understand if there could have been a legit reason for my accountant to advise me to pay myself above the N.I threshold. Many thanks in advance.

What salary has your accountant advised you to pay and what reason did they give when they suggested that amount?

I really would also ask your accountant to set out for you the tax savings you are getting from trading via a limited company - it's not an unreasonable request at all and certainly if I was your accountant if it would save you tax and fees by reverting to a sole trade I'd tell you.

Do also ask if their are ways you can save fees - consider perhaps what accounting records you keep and how you present them, that's usually one big way to save fees.

 

[Mr D]

Would expect limited company accounts to be more expensive than sole trader accounts.

Some pay more than £900.


You could switch to sole trader. May be a little involved depending on the money etc but can be done.

 

[JonnyKumquot]

What salary has your accountant advised you to pay and what reason did they give when they suggested that amount?

He's always advised setting at my personal allowance.

I really would also ask your accountant to set out for you the tax savings you are getting from trading via a limited company - it's not an unreasonable request at all and certainly if I was your accountant if it would save you tax and fees by reverting to a sole trade I'd tell you.

I agree, I was going to do this and this will be my next step.

I want to revert to sole trader but not sure if now's the right time. I had to furlough myself for 6weeks. The worry is that if I'm forced into lockdown I won't qualifry for anything.

Thanks for all replies.

 

[Mr D]

He's always advised setting at my personal allowance.



I agree, I was going to do this and this will be my next step.

I want to revert to sole trader but not sure if now's the right time. I had to furlough myself for 6weeks. The worry is that if I'm forced into lockdown I won't qualifry for anything.

Thanks for all replies.

You benefitted on furlough from your accountant's advice.
Many directors took lower wages than you and therefore could claim only 80% of their lower figure.

So not all bad.

Unfortunately there is no guarantee of when future lockdown, indeed if any, will happen.

Perhaps start a sole trader business alongside and slowly build that up for now?

 

[Energise Accounting]

The main consideration for setting up a Ltd company has always been limited liability and not tax savings.

Unless you are buying things on credit looking at your situation you would be better as a sole trader.

 

[cheaper accountant]

More details are needed to really assess if the individual would be better off from a tax point of view as a limited company vs a sole trader. What from I can see above there is a decision to made here based on all of the facts. Rather than advising on what is stated above alone.

Take a look around and compare accountant fees and you might find that a limited company option is more affordable than what you think.