Sole trader or Ltd company

[Quattromaster]

Afternoon folks, advice needed on if it is best if I went ltd (I already own the name), just sitting dormant at moment, few details below.

Sole trader at present, 4 employees plus myself, trading 12 yrs, no real debt bar finance on 1 van of 14k, approx 45k in bank and owed 30k.

I have some rental properties that added to business income means I'm paying 40% tax on approx 30k profit.

Speaking to people they say I'm better off going ltd, as paying more tax than I need to at moment, things like 19% corp tax and tax free dividends are being mentioned.

Spoken to my accountant and he seems non to keen to go ltd, but without giving me a reason.

Welcome any pointers folks, thanks in advance.

[anonymous-user]

Generally....

Keep the rental properties in your own name

If the sole trader business turns over enough to be VAT registered, it could be beneficial to you to convert it to ltd

But, like all generalisations, this advice might not be sound for your own circumstances

I suggest that you push your accountant to find out why he is anti the idea to start with

[Eric Mc]

Agree that your business does seem big enough to make limited company status a viable proposition.

I also agree that generally it is better to keep non-business related properties out of a trading limited company.

[Quattromaster]

Would these figures help at all.

The business turns over approx 295k a yr, add my rental income and I average out approx 70-75k a yr profit

I know I will always have to pay tax, it just seems I may be paying far more than i need to.

[Eric Mc]

Ask your accountant to number crunch the figures - whether he thinks its a good idea or not.

However, if you did decide to run your business through a limited company (a perfectly sensible thing to do) I would NOT include the rental property in the limited company.

The whole point of a limited company is to protect a persons's privately owned assets if the business experiences difficulty or fails. If you put a non business asset into the limited company then that asset will be vulnerable if the business ever gets into trouble.

There is more to life than tax.

[98elise]

Quattromaster said:

Would these figures help at all.

The business turns over approx 295k a yr, add my rental income and I average out approx 70-75k a yr profit

I know I will always have to pay tax, it just seems I may be paying far more than i need to.

If you recieve enough income to put you into the higher rate bracket, then you will pay it regardless of if you do it through a Ltd company or not. Dividends are Tax free in the sense that you have already paid CT on the cash. That still gets counted in your tax alowances, so the rental properties would still be taxed at high rates.

All the Ltd company would do is save you a bit of NI buy paying yourself in dividends, and you can pay yourself less money so you avoid high rate tax. This just means you accumulate money in the business, but you can't get your hands on it without paying high rate taxes.

I'm not an accountant (EricMc is), but I do run my own Ltd company, and I have a few rental properties.

Edited by 98elise on Friday 25th April 17:25

[Jockman]

If the rental properties are commercial, they should be in your SIPP anyway

You are now of a sufficient size and complexity to warrant limited liability. How you set up the shareholding will be interesting

Edited by Jockman on Friday 25th April 21:07

[peter wolfe]

If you go to a LTD company and you are the only share holder, you could if it suited you take a wage plus divided that keeps you just under the 40% tax threshhold. Any excess you can keep in the company (like a saving scheme) and draw down as necessary. This is useful if you are looking to retire / reduce work and want to try to keep tax down.
Your accountant costs will be higher for a LTD company as you have to submit full accounts yearly.

Hope this helps.

[Jockman]

Or perhaps utilise your wife as a shareholder, if applicable?? The shareholding cannot be frivolous and it cannot have conditions attached but it can certainly be advantageous.

[Deendog]

Also don't forget, trading in limited co limits your liability for debts, claims etc. If your business runs into problems in the future you may be very glad of limited liability status

[Eric Mc]

Deendog said:

Also don't forget, trading in limited co limits your liability for debts, claims etc. If your business runs into problems in the future you may be very glad of limited liability status

See my post five above this one

[Deendog]

Well said. Note to self 'read whole thread'

[Mr Noble]

Would there possibly be any 'Goodwill on incorporation'?

Google those three words and read up on it.

I went ltd last quarter after 14 years of being a sole trader and vat registered. For years, my accountant told me it wasn't worth incorporating. That accountant retired, I got a new one, and within minutes of him looking at me books, he told me I was going ltd. Big savings to be had, but even more "free money" has been generated through goodwill.

You're basically selling your sole trading business to the company, and for that, you can pay yourself that amount of money, tax free.

[Alpinestars]

Mr Noble said:

I went ltd last quarter after 14 years of being a sole trader and vat registered. For years, my accountant told me it wasn't worth incorporating. That accountant retired, I got a new one, and within minutes of him looking at me books, he told me I was going ltd. Big savings to be had, but even more "free money" has been generated through goodwill.

Looks like your second accountant got it wrong, unless we are missing facts. For businesses started pre 1 April 2002, it's not possible for a sole trader to set up a company and get goodwill relief on incorporation

Would be interesting to know why you think you're entitled to it?

[Mr Noble]

Alpinestars said:

Looks like your second accountant got it wrong, unless we are missing facts. For businesses started pre 1 April 2002, it's not possible for a sole trader to set up a company and get goodwill relief on incorporation

Would be interesting to know why you think you're entitled to it?

You can still get the goodwill, you just can't claim tax relief on it. I have had to pay the tax generated by the goodwill creation, whereas, as you correctly state, I wouldn't have had to if my business started post 2002.

I actually started it about 6 months before that date. Doh!

[Quattromaster]

Blimey, lots of interesting reading and info, many thanks to all involved.

Ref the goodwill payment thingy, I started my business on the date mentioned, 1st April 2002, would you believe it,lol.

[Zoon]

Quattromaster said:

Would these figures help at all.

The business turns over approx 295k a yr, add my rental income and I average out approx 70-75k a yr profit

I know I will always have to pay tax, it just seems I may be paying far more than i need to.

Is the profit gross, or net after paying, overheads, yourself and four staff?

Also Corporation Tax is charged at 20% on profits below £300k.

Edited by Zoon on Friday 2nd May 14:51