Tax Benefits of becoming a Limited Company?

[JQ]

My wife works for the NHS 3 days a week, PAYE. She also runs her own business, providing the same service, which is now generating £70,000-£80,000 per annum. Her accountant is crap, and more of a bookkeeper, so I have been tasked with assessing whether it's worth creating a limited company. Her assets are limited (max £25,000), she has professional indemnity insurance and all the income is derived from the service she provides, as such I can only see the benefits being a reduction in tax.

She currently declares the additional income via self assessment (with various costs deducted). I have no idea about this stuff, what do I need to do to calculate if it's worthwhile?

[Deep Thought]

JQ said:

My wife works for the NHS 3 days a week, PAYE. She also runs her own business, providing the same service, which is now generating £70,000-£80,000 per annum. Her accountant is crap, and more of a bookkeeper, so I have been tasked with assessing whether it's worth creating a limited company. Her assets are limited (max £25,000), she has professional indemnity insurance and all the income is derived from the service she provides, as such I can only see the benefits being a reduction in tax.

She currently declares the additional income via self assessment (with various costs deducted). I have no idea about this stuff, what do I need to do to calculate if it's worthwhile?

Will they pay her via a limited company?

It may well be a role deemed "inside IR35", or they may have a blanket approach to only paying via umbrella / payrole?

There are still benefits to Ltd Co, though they arent as good as what they were.

[JQ]

Deep Thought said:

Will they pay her via a limited company?

It may well be a role deemed "inside IR35", or they may have a blanket approach to only paying via umbrella / payrole?

There are still benefits to Ltd Co, though they arent as good as what they were.

Not sure who they are, but the £70,000-£80,000 is paid by her hundreds of clients at £45-£300 per time. Her NHS income is as a part time employee (PAYE).

[Deep Thought]

JQ said:

Not sure who they are, but the £70,000-£80,000 is paid by her hundreds of clients at £45-£300 per time. Her NHS income is as a part time employee (PAYE).

Ah with you now.

Thought you were considering pushing the NHS part through Ltd as well.

My bad

[Eric Mc]

JQ said:

My wife works for the NHS 3 days a week, PAYE. She also runs her own business, providing the same service, which is now generating £70,000-£80,000 per annum. Her accountant is crap, and more of a bookkeeper, so I have been tasked with assessing whether it's worth creating a limited company. Her assets are limited (max £25,000), she has professional indemnity insurance and all the income is derived from the service she provides, as such I can only see the benefits being a reduction in tax.

She currently declares the additional income via self assessment (with various costs deducted). I have no idea about this stuff, what do I need to do to calculate if it's worthwhile?

The tax advantages of operating a business through a limited company are nothing like as good as they used to be.

In fact, I woould say that there are none any more - especially since Rachel Reeves announced increases in the Income Tax rates applicable to dividends in her recent Budget.

Stating whether continuing as a sole trader or converting to a limited company is good or bad for tax purposes cannot really be answered without having somne figures to work with - there are so many permutations and variables to take into account these days that the calculations are quite complex and unique to a particular individual's circumstances.

In theory, your accountant sould be able to carry out some calculations for your wife as they have trhe information already to hand.

IR35 is a bit of a red herring. IR35 is a mechanism whereby someone operating through a limited company has to account for Employer's and Employee's NI on the amounts they bill their "customer". Consequently, it doesn't relate to sole-traders. HOWEVER, sole traders can run into "IR35" type issues if it is deemed that the work they are doing for a particular customer is deemed to be as an "employee" rather than as a "self employed" indiviudal.

Conversely, if a sole trader is working for a customer with no "emplyee/self-employed status" issues, then, on the assumption that the same arrangements continue, changing over to a limited company should not crate an IR35 problem.

[Mr Pointy]

One significant/massive advantage is that she won't be caught by MTD which starts in April 2026 for STs. She can also shove £60k a year into a pension as a director.

[Eric Mc]

Mr Pointy said:

One significant/massive advantage is that she won't be caught by MTD which starts in April 2026 for STs. She can also shove £60k a year into a pension as a director.

Good point about MTD. I've suggested incorporation to some clients for this advantage alone.

[JQ]

Thanks for all the advice.

What are the disadvantages of MTD? She already has a similar system in place - all bookings are made either via a virtual secretary or via her website and paid for in advance, so she's not dealing with cash - so all her income is already being tracked (by herself admittedly).

[IJWS15]

If she has hundreds of clients she won’t be caught by IR35.

I am not a tax accountant.

[Jockman]

Ltd can be useful for maximising household income rather than just personal income, so your financial affairs would be of interest to her.

Also useful for maximising pension contributions.

[JQ]

Jockman said:

Ltd can be useful for maximising household income rather than just personal income, so your financial affairs would be of interest to her.

Also useful for maximising pension contributions.

I think that ship may have sailed - unfortunately / fortunately I'm a top rate tax payer, so there's little help I can offer. And our 17yr old already has a part-time job (earning decent money) and our 16yr old has just applied for a job with his brother's employer. I presume that's how you maximise household income, if not, I'm all ears as to what else we could do?

And I'm not sure she'd want to increase her pension any further - she has a NHS pension and also pays into a private one.

[Eric Mc]

JQ said:

Thanks for all the advice.

What are the disadvantages of MTD? She already has a similar system in place - all bookings are made either via a virtual secretary or via her website and paid for in advance, so she's not dealing with cash - so all her income is already being tracked (by herself admittedly).

None - to be honest.

It's a new requirement coming into effect on 6 April 2026 for sole traders to upload to HMRC every calendar quarter their trading data. For tax year 2026/27, traders with gross income (sales/fees) over £50,000 MUST comply. For 2027/28 the threshold is reduced to £30,000 and from 2027/28 the threshold is further reduced to £20,000.

If she is already using a HMRC approved MTD compatible software, then she is in a good place as "all" she has to do is register for MTD and start uploading her quarterly data at the required time.

[Eric Mc]

IJWS15 said:

If she has hundreds of clients she won t be caught by IR35.

I am not a tax accountant.

Very obviously.

Having "hundreds of clients" is helpful for avoiding IR35 - but it's no guarantee.

[Jockman]

Looks like you're on the ball.

Not Limited related, but just tell her to keep an eye on vat thresholds. It can be a PITA for those at that level.

[Jockman]

On the MTD subject, my daughter has been sent details from her Monzo Business Account about it being ready for MTD ??

I'll need to look into this with her but if correct then it could prove useful.

[JQ]

Jockman said:

Looks like you're on the ball.

Not Limited related, but just tell her to keep an eye on vat thresholds. It can be a PITA for those at that level.

Cheers, that's something we'll need to look at then as she's contemplating leaving the NHS and running the business full time, which would significantly increase her total income. Probably at least 12 months away (if at all), so got a bit of time.

[Eric Mc]

Jockman said:

On the MTD subject, my daughter has been sent details from her Monzo Business Account about it being ready for MTD ??

I'll need to look into this with her but if correct then it could prove useful.

I'd like to know what Monzo actually means by that.

Bank transactions are only part of the transactions that need to be reviewed before submitting anything to HMRC - or preparing meaningful (and legal) accounts.

If Monzo are claiming that they can put together figures based on what goes through their bank feed, then they will be hopelessly inadequate figures.

[Jockman]

Eric Mc said:

I'd like to know what Monzo actually means by that.

Me too. Will keep you posted if it amounts to anything.

[lizardbrain]

Even with the recent tax rises it's still pretty decent up to 50k. Over that you can stuff a pension.

Accountants will groan, but I get quite a lot of personal use out of items bought for exclusive use by the business

[Steve H]

Eric Mc said:

I'd like to know what Monzo actually means by that.

If Monzo are claiming that they can put together figures based on what goes through their bank feed, then they will be hopelessly inadequate figures.

A rather pointless reporting of cash in v cash out is probably the very best hmrc can hope for isn’t it? Have they even published/decided what will be required yet? The April start date seems firmly set but I wonder how they will make it happen.

lizardbrain said:

Accountants will groan, but I get quite a lot of personal use out of items bought for exclusive use by the business

Are you under the impression that every self employed person doesn’t do exactly the same?