Limited Company back to sole trader

Misstique. The legislation brought in by old gordon will affect limited companies whose profits (for tax purposes) are less than £50,000. The change means that if you pay dividends, and your profit is <£50,000, you will have to have paid at least 19% corporation tax on the profits distributed as a dividend. i.e you make £30,000 profit if no dividend paid out you would pay tax of £4,750. (effectively 15.83%). if you paid a dividend of £10,000 you would pay as follows: £10,000 @ 19% - £1,900 £20,000 @ 15.83% - £3,166 total £5,066 (an additional £316) although you have paid an additional £316 in corporation tax you would have saved 12.8% Er's NI and 22% tax (assuming not 40% tax payer) saving from Er's NI & Tax - £3,480 In simple terms if your going to make profit there is benefits to being limited rather than a sole trader. Barr Stevenson Chartered Accountant http:/www.our-accountants.co.uk
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Barr Stevenson
Chartered Accountant
http:/www.jsaccountants.co.uk

In answer to: "Is there maybe a turnover threshold which would make it worthwhile remaining limited?" About £15k of profit produces tax savings of approx £1000 if you fully distribute for a basic rate tax payer with no other income. This is about par for most people in terms of the extra cost/hassle of running a ltd company. However, and its a big however, disincorporating is somewhat harder than the other way around. It would appear you are already trading within the ltd co = accounts = time and money. Unless you are going to make less than £15k per annum long term I would stick with what you have got. If you think you really do want to disincorporate have a good chat with your accountant to see if circumstances allow you to call yourself self employed for this one transaction. For anyone else starting up there is a lot to be said for starting as a sole trade, and incorporating after 12 months or so when the business model has been proven if you don’t need Ltd company status from the outset. Regards,
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James Smith
Chartered Accountant
www.jamesesmith.co.uk
01235 536 773

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Thanks very much for the advice guys.
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