HB Accountants

May

Sole trader? You need to read this...

 

If you are an individual carrying on a genuine trading business it will almost always be more efficient from a tax and national insurance point of view to trade through a limited company.

If your profits are just £20,000 you can, by taking an appropriate mix of salary and dividends get yourself a net income of £17,414 from a limited company, compared with £16,345 as a sole trader.  You would also keep the same rights to a state pension on retirement.

This saving of £1,069 would increase to £3,162 if your profits increased to £60,000, leaving you with a net income of £45,629 from the company, compared with £42,467 as a sole trader.

If you don’t need all the income generated you can save even more tax by restricting the amount you take from the company, thereby reducing or eliminating the amount of your income subject to the higher rates of tax.  The retained income would be kept within the company and could be drawn in a later year (perhaps when you were not liable to higher tax rates) or taken out as capital taxed at less than 10% when the company ceases business.

The above would not apply where the company is a “personal service company” (PSC), but by appropriate drafting of documentation it is often possible to avoid being taxed as a PSC.

Please contact John Neighbour on 01992-444466 or johnn@hbaccountants.co.uk for more details.

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