My partner and I currently work through our LTD Company. But we don’t earn/generate that much income so I’m wondering if we would be better off switching to regular self-employed?
The main deciding factor I think would be the expenses that can be claimed.
Can anyone tell me if these expenses (that we claim now) can be claimed when working self-employed from home (and occasionally at a co working space):
- Portion of house rent when working from home (Use of residence as office)?
- Co working space (a place where we pay to work from – would this affect the above)?
- Web hosting (for our business website)?
- Computer software (web design stuff and accounting software)?
- Computer hardware (might have to buy a new laptop in the next year or two)?
- Accountancy fees (what we pay the accountant for doing the tax stuff)?
- Foreign exchange losses AKA Realized Currency Exchange Gain/Loss (we get paid in USD and PayPal uses a lower exchange rate so we lose about a thousand GBP a year due to this)?
- Bank/Finance Charges (PayPal fees on each client payment we receive)?
- Subcontractor Costs (sometimes we have to hire people to do some of the work we take on)?
- Home broadband connection (not sure if we claim that or not)?
I think that’s about all of our expenses. We haven’t started a pension yet. But if we did start a SIPP, would that be an expense too?
Also the cost of the accountant could be a factor too, depending on the difference between the cost of them doing the books for a LTD company vs. two people’s self-employed tax returns.
Does anyone have a rough idea of how much an account charges for doing one person’s tax return? We log everything through FreeAgent so I think all the data would be there?
It’s hard to say which is best because our income should go up each year, but it might not!
Also, what’s the process for shutting down a LTD Company? Does it have a cost? Can we leave it inactive and come back to it later when our earnings pick up?
Are there any good spreadsheets around that I can put all the details in and see what they say?
I will ask our accountants but I’d like to get an idea myself first, as I assume it’s in the their best interests to keep me as LTD Company as they make more money from us that way!
Many thanks!
Hey there! There are many advantages to running a Limited company compared to being self employed, some of which are listed below, so you may want to consider these before changing your business structure to being self employed.
a) A ltd company will provide added confidence to external stakeholders such as suppliers and customers
b) A ltd company’s profits will be subject to corporation tax rate which is much lower than personal income tax rates. A ltd company will pay corporation tax on it’s profits( which is currently 19%) compared to income tax rates which can be as high as 45% depending on how much you earn.
c) The director’s liability is limited only to the value of its assets, so if the company was to go bankrupt, the director’s personal assets are not at risk of possession.
d) The shares in the LTD company can be used to further expand the business.
e) Limited companies offer better tax planning opportunities – for example every penny you earn in a tax year as a sole trader will be taxed that year, however with a limited company you can store money in your company and take in future years or use that money to invest in the business.
f) It might be easier to obtain a bank loan
If you are self employed(trading as a sole trader), you can claim any expenses that are incurred wholly and exclusively for the purposes of conducting your business,so most of the expenses that you are currently claiming, you should be able to claim if you were self employed as well. The gov uk has very handy section on which expenses you can and can’t claim when you are self employed.(It’s called “Expenses if you are self employed”).
If you currently use your house as an office, you can also claim the portion of the rent and utilities that is used for your business. For example if you use half the rooms in your house for business, you can claim half the rent and utilities as your business expense.
If you were to start paying into a personal pension and you were self employed, you will not be able to directly offset your pension contributions against your trading income from your business, but you will be able to get tax relief of your total annual income at your highest rate of income tax. However if you were to pay your pension contributions from your LTD company, you will be able to claim this as your company expense which in effect will reduce your taxable profit and hence reduce the corporation tax that you would pay.
To close down a LTD company, you can apply for what’s called a voluntary strike off which costs £10. If the company has stopped trading, you can also make the company dormant and restart it again at a future date if it starts trading again. All of these processes explained in detail on the gov uk website,
Administering a LTD company is more work( Corporation tax returns have to be filed, company accounts have to be made and filed, confirmation statements have to be done with companies house), so your accountant is likely to charge you more for this than doing two self assessment tax returns. The fees an accountant will charge for doing a tax return will vary depending on how complicated or simple your other tax affairs are, so its difficult to quote an estimated price.
