6 ISSUES FOR JUST £6 Subscribe to Business & Professional Life today CLICK HERE

Company or sole trader – no longer a tax-driven choice?

PUBLISHED: 14:33 13 August 2018 | UPDATED: 14:33 13 August 2018

John Tooth, Chartered Tax Adviser at Paish Tooth

John Tooth, Chartered Tax Adviser at Paish Tooth

Archant

The number of small businesses in the UK is currently at a record level. But if you own one of these many small businesses, what drives you as an entrepreneur to choose between trading under your own name or via a limited company? And what impact does that choice have on your post-tax income?

For a while now the ‘smart money’ has been on setting up a limited company, which leaves you with more cash in your pocket. And while that remains broadly the case today amongst businesses making up to £100k of annual profits, the tax savings are now continuing to fall thanks to HMRC actively pursuing its agenda of everyone ‘paying their fair share’ (in this case via changes to dividend taxation). For instance, at an income level of £40,000 a year, a one-person company could save £1,100 in 2018/19 tax liability, compared with a saving of £1,350 in 2017/18. When you take these earnings up to £80,000 a year, in 2017/18 savings were £2,700 compared to only £2,000 in this tax year.

Other considerations for setting up a company:

Tax saving has often distorted people’s choice of business structure, so perhaps it’s no bad thing that today, with a reduced tax incentive, the focus should shift onto what best suits the circumstances of the business. The range of possible considerations is a wide one, but recurring themes include the following:

Limited companies:

• A key attribute is protection for personal assets that could otherwise be exposed to claims from creditors

• In certain instances it may be possible to benefit from enhanced-rate R & D tax reliefs

• Tax savings may be possible as highlighted above

• A downside is regulation/formality. Requirements include registering a name, appointing at least one director, and routinely putting annual accounts onto the public record at Companies House (albeit in simplified form).

Sole traders:

• Simplicity and absence of limited company formalities are likely to be the chief attractions

• Scope exists for income tax repayments where losses are suffered in the early stages of the business

• It’s entirely feasible to transfer the business to a limited company at a later stage (perhaps once the loss-making phase is complete)

The value of a second opinion:

An experienced accountant or tax adviser knows the ropes. He/she wants you to succeed in your business and wants to be along for the ride. Taking time to think through the range of options with someone who’s been there before is a vital element in financial planning, and ought not to be dismissed if you’re serious about getting your business off to the best possible start – or perhaps you’re even wondering whether the choice you’ve made is the right one.

You should be aware that different tax rules apply in Scotland, and different considerations also apply in certain specific circumstances, e.g. property businesses or professional contractors.

Greater tax savings may be available where a limited company is jointly owned by a spouse or civil partner, but the attraction of such arrangements – where they’re possible – have again been diluted by the changes to taxation of dividends.

John Tooth is a Chartered Tax Adviser with 35 years of qualified experience in accountancy and tax consultancy.

For more information visit the Paish Tooth website.

0 comments

Welcome , please leave your message below.

Optional - JPG files only
Optional - MP3 files only
Optional - 3GP, AVI, MOV, MPG or WMV files
Comments

Please log in to leave a comment and share your views with other Cotswold Life visitors.

We enable people to post comments with the aim of encouraging open debate.

Only people who register and sign up to our terms and conditions can post comments. These terms and conditions explain our house rules and legal guidelines.

Comments are not edited by Cotswold Life staff prior to publication but may be automatically filtered.

If you have a complaint about a comment please contact us by clicking on the Report This Comment button next to the comment.

Not a member yet?

Register to create your own unique Cotswold Life account for free.

Signing up is free, quick and easy and offers you the chance to add comments, personalise the site with local information picked just for you, and more.

Sign up now

More from Cotswold Life

Wed, 11:00

Taking over the reins on a well-established 50 year old family business, third generation family member Matt Cleevely has taken his own passion for sustainability and put in place a business vision that marries the heritage of Cleevely Motors and a future commitment to all things electric

Read more
Wed, 10:10

He quit his job with a few thousand pounds in savings and an empty garage. In less than a year, Nick Grey’s technology company Gtech was flying. Tanya Gledhill meets him

Read more
Tue, 15:03

From food and farming champions to expert retailers, design houses to haulage companies, the old guard to the new kids on the block, we are lucky to count them among our numbers and applaud the contribution they make to the Cotswolds’ business landscape

Read more
Tue, 14:18

Did you attend the opening of Lodders’ new office in Cheltenham? If so, you could be in our social photos...

Read more
Tue, 13:05

“It’s important to keep investing in new equipment, not only to meet demand but to also maintain the high quality of our packaging that our customers rely on.”

Read more
Tue, 12:58

Crowe, the national audit, tax, advisory and risk firm, has acquired a Gloucestershire accounting business that specialises in helping entrepreneurs

Read more

I send this postcard from Cirencester, complete with the discoveries and viewpoints from four members of my family – both the young and not so young

Read more
Tue, 11:05

Of all the castles in the region, none have seen as much war, romance and royalty as Sudeley over its dramatic 1,000-year history. And with such a colourful and eventful past, it is easy to see why some people believe there could be spirits from bygone eras which still wander the halls and corridors to this day

Read more
Tue, 11:04

‘If its autumn in Gloucestershire, then it must be time for Apple Day when we celebrate cider’

Read more

What started as a business ploy by one Cotswold firm has developed into an inspirational garden

Read more
Mon, 16:08

The weekend is fast approaching and for those still deciding how to spend their Friday through to Sunday, we pick 5 of the best ways to spend your weekend in the Cotswolds

Read more
Mon, 14:51

‘What meal would you choose, if you could only ever eat that meal three times a day forever and day?’

Read more
Friday, October 12, 2018

Here’s our pick of some of the very best chefs from our local pubs, restaurants and hotels in and around the Cotswolds and sharing their advice and tips on how they made themselves and their businesses successful

Read more
Friday, October 12, 2018

Martin Smart, a director at Shipston-based Hayward Smart Architects, extols the value of appointing an architect

Read more

Newsletter Sign Up

Sign up to the following newsletters:

Sign up to receive our regular email newsletter

Our Privacy Policy

Latest Competitions & Offers

Topics of Interest

Food and Drink Directory A+ Education

Subscribe or buy a mag today

subscription ad

Local Business Directory

Property Search