sole,partnership or limited ?

[intercityuk]

Happy new year,

I am thinking of starting my own handyman business.

A little bit of background info first.

My wife only earns 15k per year fulltime and i earn 45k fulltime

I don't expect to earn loads a money but if i set it up in my name i will be paying 40% tax on all profits, not much incentive really?

However if my wife starts the business she will only pay 25% tax

So does it make sense to register the business in her name even though i will be doing all the work or maybe that's illegal?

What about a partnership ?
what about Limited ?

Please go easy on me, this is my first post.

Thanks for reading my post

Regards Paul:|

 

[SetupaCompany]

Sounds like you could do with a sit-down meeting with an accountant to look at your personal situation and finances and advise the best option based on that.

What is not clear is whether the 45k income you earn is from this business you intend on setting up or whether that income would continue in addition to whatever you earn from the new business?

If its in addition then almost certainly being a sole trader will work out expensive for you and starting a limited company is probably the best way to go. Even if the 45k is from the same company this may still be true as there are various tax breaks you can get from running a company plus you can control more effectively how much tax you pay depending on wages and dividends taken.

If you are a limited company you could easily give your wife a share of the business or perhaps a role within the company (if there is a suitable role you can find for her) to maximize the tax advantage.

I would certainly sit down with a good accountant though so you can go through all the options.

 

[intercityuk]

Thank you very much for your reply, the 45k is for my job now which I will be doing alongside my new business.

Thanks again
Regards Paul

 

[SBlundell]

I would echo Setupacompany's advice here - a chat through your specifics with an accountant (or two) is a very good idea. The ICAEW do a free no obligation initial consultation service here or recommendation from friends / family is good.

Your overall premise is correct however - you probably want to make the most of your wife's lower tax rates before you take any more income. A limited company holds an advantage here because you can manage income drawn (through dividends / wages) much more efficiently that a sole trader / partnership (where you get taxed on profits regardless of how much you take out).

However, if you expected to make trading losses for the first few years (which many start ups do) there may be tax advantages in being a sole trader at the outset because of your higher other earnings.

Plus of course, tax is not the only consideration!

ETA - PS Welcome to UKBF

 

[intercityuk]

Thanks for the reply Sam just one more question.

Could i start off as a sole trader and change say in a couple of years to a limited company ?

Thanks again
Paul

 

[SBlundell]

Yes definitely - it's quite common (more unusual to start as a company then 'disincorporate' & revert to sole trader).

Indeed the point of transfer holds its own tax planning opportunity .