Should I have Ltd Company?

[JamesBrown200]

I'm in my 3rd year of self-employment and I think it might be time to change accountants...

My accountant tells me that trading a limited company is still the most tax efficient way for me to operate. But I can't see how. Consider this as an example:

Without limited company
Turnover £10,000
Basic Rate @ 20% £ 2,000
After Tax Income £ 8,000

with limited company
Turnover £10,000
Incorporation Tax @ 20% £ 2,000
After Tax Business Profit £ 8,000
Basic Rate @ 20% £ 1,600
After Tax Income £ 6,400

So, to my calculation, on £10k turnover, I'm losing out to the tune of £1600 because the same money is getting taxed twice.

Am I right?

[Lambs]

J,

No. Nice try, but you are overlooking that the company can pay you a salary and claim tax relief thereon. Exposure to Income Tax and NICs - if any - will depend on the size of the salary.

If you give us the figures, then I can tell you what is the potential saving.

Regards,

Lambs

[JamesBrown200]

Oh OK
£32k salary

Thanks for your help

[Lambs]

Hi

Assuming you mean £32k trading profits -> trade in new company of which you will be 100% shareholder, see

https://drive.google.com/open?id=0B2nYQ ... zVEVW9xSEE

I have assumed £250 extra costs to running a company, and £8,000 with the rest taken as dividends. The saving is about £700.

Although we don't yet know what all the rates and allowances will be for 2020/21, assuming the government sticks to the intended 17% Corporation Tax rate in 2020/21, you would be looking at a net saving of around £1,300. The current potential saving does not make a compelling case for incorporation. (But precious little does, these days). Maybe in a few years? By comparison, the saving in 2015/16 would have been £1,700.

If you have other income, Child Benefit, etc., etc., as per the schedule, then I can refine as appropriate.

Regards,

Lambs