Starting a business - ltd co or sole trader?

[pulleng]

Sorry if this is an obvious question but:

I want to start trading, re-selling telephony services, and don't know which is the best tax model to use. I am also in full time employment paying tax & NI through PAYE earning £35K

Should I register a ltd co?

With my limited knowledge it seems less hassle as I only have to fill in an annual return and pay corporation tax when profit reaches £10k .. or 19% on all dividends I draw if profits are less? Presumably if I don't draw a salary then I do not pay any NI contributions?

As I sole trader I am worried that the Inland Revenue will ask for money ahead of me earning it and can't grasp how I am assesed and when I have to pay tax & NI

Any general advice would be appreciated (with no liability etc etc)

[cranleys]

Hi

You should only consider registering as a company if you generally will take advantages of the higher expenses possible and will look to retain some cash rather than draw it out.

Higher expenses can be claimed in the form of a use of home charge as high as £4,250 without paying any personal tax on it. A sole trader can only claim a proportion on actual costs.

There is no additional tax on dividends when a below a higher rate tax payer and only PAYE and NIC can be paid on a lower salary.

You must pay yourself a minimum wage and be aware of the issues surrounding IR35.

Feel free to call - companies via myself can be set up for just £39 + VAT set up in a couple of hours!

Colin Davison
colin@cranleys.co.uk
07766 714000
Colin Davison

[Ian McTernan CTA]

Colin,

I have sent an email to your email address regarding the above comment on the use of home...

Ian McTernan CTA
Managing Director
McTernan Associates Ltd
ian@imcternan.com

Author of 'How to use Companies to cut your property tax bills' and '101 Practical Tax Saving Tips' available through http://property-tax-portal.co.uk/cmd.php?af=189188

[cranleys]

Thanks Ian

It is quite an attractive position to use, often forgotten about.

Colin

[Lambs]

Oooh, let me guess.....rent a room?

Ferret, you should perhaps take a step back from looking just at tax, and consider the broader picture: a limited liability company offers you exactly that: limited liability. Even if it's going to be a relatively small concern, it's better to be limited if there's a real risk of financial issues in the future. However, limited companies do involve more of your time, and will probably cost more in accountancy fees. (If you get your accountant to do all the statutory work, accounts and filing, consider around £700 annual fee at the minimum).

Drawing dividends instead of self-employed earnings is still likely to be marginally better for a higher rate taxpayer; consider also the flexibility offered by giving dividend-paying shares in your company to your spouse, your relatives, your cat... (just kidding).
At this point, many people will be throwing stuff at their monitors because there is a HUGE case going around at the moment where the Revenue have successfully (so far) contended that the spouse's shares should be treated as belonging to the husband, for Income Tax purposes, essentially because he does all the work and it's his expertise that is being traded - there's no working asset base to speak of. However, with a little careful attention to detail, it should be possible for e.g. a spouse to take a very tax-efficient income stream even 'though all your lower rates are already utilised, and anyway, my money's on Artic....(that's the aforementioned case).

As an aside, E-file your annual PAYE forms as an employer and as a "small business," you should get some cash BACK from the Revenue! (If you're a director of your own company, you're an employee, and have to operate PAYE - this is part of what I meant when I said it involved more work).