Sole Trade -v- Limited Company

Discussion in 'Accounts & Finance' started by DFL, Mar 13, 2008.

  1. bestforsextoys

    bestforsextoys UKBF Regular Free Member

    387 24
    I would stay a sole trader until you turn over so much and the become limited when you atleast you turn over £60,000 as you start to pay alot more

    Austin
     
    Posted: Aug 3, 2009 By: bestforsextoys Member since: Jun 12, 2009
  2. elainec100@cheapaccounting

    [email protected] UKBF Newcomer Full Member

    13,268 2,883

    with all due respect this may not be the best advice for tax purposes
     
    Posted: Aug 3, 2009 By: [email protected] Member since: Nov 4, 2005
  3. Which Network

    Which Network UKBF Regular Full Member

    317 37
    As someone with a small business, this is one of the issues I have the most difficulty in grasping. Over my professional career I have had 5 accountants and they have all had different opinions on this.

    If I strip away any complications, and take things right back to basics. Is it true that if trading as a limited company I can just pay myself the minimum wage and take the rest of my income (I mean this in the sense that it is money coming in, not as an accountancy term) in dividends saving myself some money on Nat Ins payments, and a little in tax?
     
    Posted: Aug 18, 2009 By: Which Network Member since: Jul 13, 2009
  4. elainec100@cheapaccounting

    [email protected] UKBF Newcomer Full Member

    13,268 2,883
    You can pay yourself a salary and then take any remaining profit after allowing for corporation tax as dividend (no NI on dividends), see this link:

    http://www.cheapaccounting.co.uk/fivesalary.php

    profit is not the same as money coming in - but you need to understand it to work out the dividend available I'm afraid.
     
    Posted: Aug 18, 2009 By: [email protected] Member since: Nov 4, 2005
  5. ExtinctFire

    ExtinctFire UKBF Newcomer Free Member

    82 4

    thanks for this, i don't know why i haven't seen this post before hmmmm, anyways i decided to go sole trader, i may change at a later date but i'll stick to sole trader for now as im just getting started.

    thank you for your pro's and con's list though, very helpful :)
     
    Posted: Sep 3, 2009 By: ExtinctFire Member since: Feb 11, 2009
  6. mahutchinson

    mahutchinson UKBF Newcomer Free Member

    1,058 110
    Income tax rates are falling ???
     
    Posted: Sep 3, 2009 By: mahutchinson Member since: Mar 17, 2008
  7. JamesCartwright

    JamesCartwright UKBF Enthusiast Free Member

    675 102
    Posted: Sep 9, 2009 By: JamesCartwright Member since: Jun 1, 2009
  8. gogsy

    gogsy UKBF Newcomer Free Member

    6 0
    This is great stuff. As a newbie can I just get clarification of something? If a small business director takes dividend (after Corporation Tax as stated above) is there only a further personal tax liability if this takes total income above the 40% threshold? If so at what rate is tax payable?

    Also would tax only be payable on that part of the dividend that represents income above the higher rate threshold?
     
    Posted: Sep 15, 2009 By: gogsy Member since: Sep 15, 2009
  9. elainec100@cheapaccounting

    [email protected] UKBF Newcomer Full Member

    13,268 2,883
    great calculator here for your question:

    http://www.contractorcalculator.co.uk/Dividend_Tax_Calculator.aspx
     
    Posted: Sep 15, 2009 By: [email protected] Member since: Nov 4, 2005
  10. gogsy

    gogsy UKBF Newcomer Free Member

    6 0
    elaine

    many thanks - that really helps
     
    Posted: Sep 15, 2009 By: gogsy Member since: Sep 15, 2009
  11. Spongebob

    Spongebob UKBF Ace Free Member

    2,192 1,105
    On reflection I have come to the conclusion that potential tax savings are something of a red herring and that anyone running a business without the benefits of limited liability is a fool.

    Nobody can predict the future, and while one may confidently plan to run a business without debt liabilities creep up on you whether to suppliers and utility companies, the taxman, or to customers if you take deposits. A sudden downturn in trade or a personal crisis such as illness can easily render a small business insolvent, particularly in its early days when money is inevitably tight anyway and no profits have been retained.

    The small amount of extra paperwork and minimal extra accountancy cost is a very small price to pay for the security of limited liability. Without it you may well lose everything if things don't go according to plan, including your home.
     
    Last edited: Oct 12, 2009
    Posted: Oct 12, 2009 By: Spongebob Member since: Dec 9, 2008
  12. Which Network

    Which Network UKBF Regular Full Member

    317 37
    I agree completely with the above posting. The only area where things might be different is if you are considering becoming a small independent mortgage broker where PI covers regulatory risks, all of the major insurance companies insist on clawback risks being backed by the adviser, not the company and any network you might join will again insist on company principals taking personal responsibility for any incurred losses.

    But other than this, I would certainly say the benefits of running a business outweigh the costs, particularly in times like the present.
     
    Posted: Oct 12, 2009 By: Which Network Member since: Jul 13, 2009
  13. NicolaHarrisonAndCompany

    NicolaHarrisonAndCompany UKBF Newcomer Free Member

    13 2
    It seems like all the tax benefits have now been eliminated for limited companies, but I would certainly agree that the limited liability aspect of the company is well worth the extra administration.

    It also allows for more tax planning and if managed well doesn't have to be any more complicated than a sole trader set-up.

    For anyone starting in business I would always advise them to consider a limited company as the best option.

    Nicola
    HarrisonAndCompany Chartered Certified Accountants
     
    Posted: Oct 26, 2009 By: NicolaHarrisonAndCompany Member since: Oct 26, 2009
  14. David Griffiths

    David Griffiths UKBF Legend Full Member - Verified Business

    11,426 3,561
    Really? All of them? I have to disagree with that. £1,300 at earnings of £25,000 and £3000+ at earnings of £50,000 is hardly eliminated.
     
    Posted: Oct 26, 2009 By: David Griffiths Member since: Jun 21, 2008
  15. NicolaHarrisonAndCompany

    NicolaHarrisonAndCompany UKBF Newcomer Free Member

    13 2
    I take your point David, but in the past many businesses were incorporating for the tax benefits alone, but that isn't the instant attraction anymore.

    I am hoping that the government try and encourage small businesses again, whereas the changes in recent years seem to be taking away the advantages for small limited company owners.
     
    Last edited: Oct 26, 2009
    Posted: Oct 26, 2009 By: NicolaHarrisonAndCompany Member since: Oct 26, 2009
  16. Noony

    Noony UKBF Newcomer Free Member

    2 0
    We enjoyed the freedom of being a partnership, then went Ltd for tax and liability reasons. We really regretted it because we suddenly felt as though our business wasn't our own any more. It is more like working for the taxman that for yourself. This may sound strange to some and although there are advantages to being Ltd, you really need to think long and hard and talk to professionals and other business people regarding the pro's and con's before you decide.
     
    Posted: Oct 27, 2009 By: Noony Member since: Oct 27, 2009
  17. elainec100@cheapaccounting

    [email protected] UKBF Newcomer Full Member

    13,268 2,883
    Me confused - if you went limited because of the tax advantages then why was it like working for the tax man as a limited company and not as a partnership?
    :|:|:|
     
    Posted: Oct 27, 2009 By: [email protected] Member since: Nov 4, 2005
  18. Noony

    Noony UKBF Newcomer Free Member

    2 0
    Sorry, didn't mean it to sound confusing. I am not saying we were right to feel that way, but we felt as though the business was no longer ours. I did say it may sound strange to some. We felt as though we had a lot more freedom, even though we may have paid a bit more tax, before we went Ltd. What didn't go to the taxman belonged to us, not a Limited Company where it was tied up by laws and regulations. Rightly or wrongly, that is how it felt for us.
     
    Posted: Oct 28, 2009 By: Noony Member since: Oct 27, 2009
  19. scothost

    scothost UKBF Newcomer Free Member

    298 78
    Out of curiosity.

    If you have a ltd company, what does an accountant do that you cant do yourself? Not that I am suggesting you can do it as well as an accountant.

    It's just a question I have never really asked.
     
    Posted: Oct 30, 2009 By: scothost Member since: Aug 29, 2009
  20. elainec100@cheapaccounting

    [email protected] UKBF Newcomer Full Member

    13,268 2,883
    Well here is what you have to do:

    http://www.franklyaccounts.co.uk/fivefile.php

    So you work out what you can do yourself and then you pay an accountant to do the rest (or sorry to say is often the case - correct the things which you did wrong :p:D).
     
    Posted: Oct 30, 2009 By: [email protected] Member since: Nov 4, 2005