Limited Company - Tax Efficiency

[dale38]

I'm really pleased with these replies. I've justed sneaked a quick look before work so I will give them a good read tonight.
Dale 38.

[dale38]

Ok so it seems I'll be better going down the ltd company road. I've gone on the comparison web page ( http://www.hurrenaccountants.co.uk/news ) as requested and I'll save between £4k and £7k. Thanks for suggesting this, it's a fantastic resource.

Thanks also for the claimimg mileage advice. However, i am stuck on what part this plays in the equation. If I claim my 40k miles from the government at the moment this is deducted from my taxable income. How does it work if I pay myself the 40k miles (£12k) from my company? Is it cash i pay myself? How am I taxed on this?

This is the reason why I have stated my savings will be between 4-7k in tax because I'm not sure what box to punch it into.

How does paying myself mileage for running my own car work?

Thanks in advance for the reply.

Dale 38

[robbob]

Hello Dale

i am stuck on what part this plays in the equation. If I claim my 40k miles from the government at the moment this is deducted from my taxable income. How does it work if I pay myself the 40k miles (£12k) from my company? Is it cash i pay myself? How am I taxed on this?

Its the same tax deduction for both Sole trader and limited company.
eg 40k business miles
say 10k at 45p and 30k at 25p

As sole trader allowable deduction from income = 12k
As limited company the company pays you 12k(tax free) this reduces the company profit by 12k as this payment is a deductable expense.
So the same tax deduction is claimed for both sole trader and limited company

Note strictly speaking if you are self employed you can only use this method if your turnover is below 68k when you purchase your vehicle, if your turnover is above this limit you should use actual motor expenses method adjusted for private use (including capital allowances claim). This restriction does not apply for a limited company.

This is part of the problem trying to make general comparisons as the rules are different for pretty much any expense where there is a private use element.
In general terms at present though the limited company saves tax if the amount of "claimable expenditure" is the same.
This is where a decent accountant can make your life easy by advising on whether a transition from one to other is (a) worthwhile and (b) to ensure if you take the plunge the transition is done correctly so you don't fall foul of the more complicated rules that exist for limited companies - Eg the limited company tax saving can only be made by taking most of your income as dividends and you can only take a dividend when the company has sufficient distributable reserves.

Feel free to contact ourselves via the same website linked above if you need any more specific advise.