David Barry Accountants and tax advisers 020 8252 7018/07877671423
HOLISTIC TAX ADVANTAGES OF LIMITED COMPANIES VERSUS SOLE TRADERS
TAX AFFAIRS FOR TWO OR MORE DIRECTORS
I understand that you are both looking for ways of reducing your tax payable (why not?) and so let me present to you both a solution that may be of help to you.
Now that you, Mrs X, are no longer working fulltime, an excellent solution for you both would be to form a limited company with both of you as directors, equal shareholders and Mrs X as company secretary.
In this way, it may be possible for you both to be paid salaries up to the personal allowance limit of 6035 and free of personal tax. This will reduce the corporation tax bills of the limited company by 6035 x 2 x 21%(corporation tax) saving you a combined £2,534.70 per year or £211.23 per month.
At the same time this would allow you both to build up far better pension rights at retirement for the same investment of money as the self employed stamp because the employee stamp class 1 pays a far better level of benefit than the class 11 self employed stamp. How much? Can be £25 or more per week at retirement for each of you-not to be sneezed at!
You both would therefore have an investment in your joint limited company and can work it together and so help to build a far better business.
Should your business prosper then at company profits in excess of 5435 you would save the 8% class 4 self employed stamp. Therefore, if say your profits are £15,000 at the year end, then you would save a further £15,000 less 5435 (pa) = £9,565 x 8% equalling £765.20 or £14.72 per week.
Therefore, for the same level of profits for a limited company versus a sole trader your total tax saving would be £1,267.35 + £765.20 equalling £2,032.55
I will not pretend that this annual saving each year does not come without some additional costs and extra paperwork. I would have to teach you both a more careful way of keeping the books and records of the company (can help to justify salaries) and an extra annual filing fee at Companies House. Accountancy fees would be about the same as I would no longer be preparing two sets of self -employed accounts.
Additional costs would be running an annual payroll for you both and I would also have to write contract of employments for you both with the company, setting out your duties and obligations. However, this fee is only payable once to me at the outset but should be re-visited regularly.
Additionally, and for the future, the company can pay you both childcare vouchers (the first £55 is free of tax and NIC and you both qualify) saving you both a further £55 + £55 = £110 pw x 52 = £5720 x 22% equals £1,258.40.
It would also put you both in a far better position to claim (at times) the working tax credits allowance (for periods when no work is available) as you would have readily available P60 forms at each year end.
I forgot to mention- the business does not work-get issued immediately with a P45. Want a mortgage? You can have immediately your dividend certificates and P60 form. Car insurance, van insurance or a personal loan-whats your business sir? I am a paid employee of a company. "Here is my P60 form and dividend schedules.
If of interest to you then please get in touch with me,
Yours sincerely,
Get in touch with the professionals.
David Barry on 020 8252 7018/07877671423
David Barry Accountants and tax advisers 020 8252 7018/07877671423