Sole Trade -v- Limited Company

You have a point, but a lot of mortgage advisers/mortgage providers are aware more and more individuals are operating through a limited company. When our clients who operate through a ltd company and require mortgage documents the mortgage provider often requires an accountants certificate showing the turnover and profit of the limited company as well as the individuals personal income and reference to their shareholding.

The reason they ask for this now is that it is possible that an individual is a sole shareholder of a million pound turnover business but their personal circumstances mean that they only withdraw a small salary and dividends - although if they wanted to they could withdraw much more!

 

@Adam93 thanks. That is good to know. Do you know if the same works with estate agents and renting? Often they have a minimum earning requirement to get a place, so people able to use the turnover or pre-tax profit from the LTD company would be useful.

Also, there are two directors and they are 50/50 share holders and will be renting together (couple).

 

I have done a few Santander ones recently and on the accountants certificate they require you to itemise shareholdings between spouses and show their income separately.

 

Thanks. I'm talking to estate agents now about renting and how much rent they think I can afford each month.

The pre-tax profits of the LTD company was about £41,000 which is just about enough to rent somewhere where I live (using the 30 x monthly rent figure).

There was about £5,000 corporation tax.

But after paying the corp tax and then both taking a salary and dividends we only had £36,000 income between us which isn't enough to rent somewhere here.

If we'd been regular self-employed (not LTD company), our pre-tax income would be £20,500 each (£41,000).

There was also the other LTD company expenses such as the accountant (£1200, use of home, etc) which we probably wouldn't have had if we were regular self employed and would've pushed our income on paper up more to perhaps £43,000 which would be better for trying to rent somewhere to live.

Unless an rental estate agent would look at the LTD company accounts, we'd be better off being self employed and paying more tax but earning more on paper.

Does no one else here rent and work through a LTD company? Or are you all making so much you just pay 12 months up front in cash?

 

Also, is it possible to take all the profit from the business as a salary so there is no corporate tax paid?

Say the LTD had a turnover of £50,000 with £5,000 expenses, could the £45,000 be paid as a salary?

Instead of doing £50,000, minus £5,000 expenses, minus £8,000 salary, minus corporation tax, with the rest going out as dividends?

Also, do you have to claim all expenses? Such as working from home allowance, internet costs, etc? Or is that fraud as it makes it look like the business has earned more than it did?

Thanks

 

Yes you can pay whatever salary you want. You have no obligation to claim these expenses.

Can I suggest starting a new thread? There are a number of people who post regularly about how to get a mortgage but I suspect they never look at this particular thread.

 

Thanks, will do!

 

Hi All,

In the process of purchasing a successful Trading Restaurant. I’m purchasing the entire Business including the freehold with the help of a commercial loan and putting down approx 250k Myself.

I’m buying the property in my name personally. I’m aware of the limited liability benefits the company would have. The current owner operates as a sole trader despite turnover being in excess of £1m.

Question is should I trade as a Limited Company or sole trader? Or perhaps start as a sole trader and then change to an Ltd company further down the line?

Many thanks

AB

 

Restauarants have a high failure rate so for that reason alone I would recommend a limited company for the business.

 

If you're investing £250K of your own money, you ought to be getting face to face advice from a qualified accountant and not seeking advice on a forum when we cannot possibly be aware of all the relevant information concerning your plans and your personal circumstances.

Have you taken advice on the structure of the purchase? Are you buying just the assets? Have you agreed the allocation of the purchase price? Are you aware of your potential liabilities under TUPE?

But good luck with your plans. As @Scalloway has said it is a very risky business. Even Jamie Oliver is having problems at the moment as are a number of other well known names in the press at the moment.

 

Thanks both for your replies. Yes I have had my accountants look at the deal closely. The apportionment has been sorted and I’m aware of my obligations under TUPE etc.

The accountants have suggested I buy the freelhold personally then I lease the property to a limited company which in turn would be the legal entity buying the current goodwill of the business.

I’m already in the restaurant trade but with this being a somewhat larger operation the use of a ltd company has been suggested for its limited liability protection.

My predominant reason for asking the question was because I’m curious about which structure is the most tax efficient way to draw profits from the business.

My other concern is that I would have to pay tax on the rental capital received from the company in order to pay the Commercial mortgage.

 

Fascinating thread.

I am thinking of setting up a new, fairly small UK business and was keen to know how much paperwork and administration was involved every year in running a limited company i.e. one registered with Companies House?

The business won't be very big. It will provide consultancy services to other businesses and should "only" involve about twenty payments going into and another fifteen going out of the business bank account every month.

I am already fed-up with adminstration in other parts of my life and so am concerned that the amount of red tape will keep me tied to my computer on Sunday evenings forevermore doing this and that!

HMRC will soon require filings every quarter, as well as the annual paperwork for them, and then there's calculating the income, every single expenditure, all the VAT etc.

I think for such a small company it'll be more efficient and quicker doing it myself than dealing with an external party - an accountant - all the time.

Very approximately, how many hours every month or year does all the admin with Companies House, HMRC etc. take? I appreciate it varies from business to business.

Your advice would be most welcome! Thank you.

 

If you use a good accounting system and keep everything up to date it shouldn't take long as long as you keep up to date with HMRC's requirements.

 

Thanks very much. What do you mean by "it shouldn't take long" please? Somebody could consider that to be five hours a month and somebody else twenty hours a month.

 

It depends what you mean the admin with Companies House, HMRC etc. To my mind that is putting all the figures that have been compiled during the year into the forms provided by Companies House by HMRC. That takes a few hours of slotting figures in under the correct headings and doing the adjustments from book profit to taxable profit (remove non deductible items, add back depreciation and deduct capital allowances etc.

During the year the bank will have been reconciled monthly, debtor, creditors and other control accounts reconciled at the year end. The fixed asset register will be up to date. And probably a few other things I have forgotten.

 

Brilliant hijac of a thread. Congratulations.

 

Hour a month upwards.

 

In case anyone else is working through a LTD company and renting, we have just gone through the process.

The estate agents used the 30 x monthly rent is how much you must earn to pass the affordability test, EG £1000 p/m rent means you must earn £30,000 per year to pass.

The estate agent seemed to know about LTD companies so we got through the first step.

They used a third-party tenant referencing service but at first they didn't know about LTD companies in this scenario and just looked at our personal salary and dividends.

However, after pursuing the matter, we spoke to someone who did understand our situation and after emailing a statement document from the LTD company, they agreed we met the affordability test.

So it was touch and go but we got there in the end!

 

Thanks for all this useful information. I'm at the point of deciding whether to go limited but now I realise there's a lot more to think about. Cheers, Matt