A question for Peugot.....

Cullen

I wonder, Peugot if you have an opinion on my friend's situation.

For years he has worked as a brickie on the CIS scheme.

He now has a project building a house for a chap who has a plot of land. This landowner will be paying all the contractors himself, directly. Therefore no CIS deductions.

My friend expects to earn about 50K in all for his work, and thinks the job will last about 9 months. He then hopes to continue to get similar work and be paid directly, outside the CIS scheme.

Someone in the pub,,,(I know, I know....) advised him to "buy" a limited company for a couple of hundred quid and he could save thousands in tax.

My friend will not employ anyone nor subcontract any work.

What do you think? I suspect that there will not be much benefit in changing from a sole trader to a Limited Company.

peugeot

It would all depend on the profitability of the business. Incorporation is not to be dismissed entirely, but nowadays it doesn't carry as many tax breaks as it did a few years ago.

The increase in corporate tax rates for small companies (now 21% and from 1 April 2009 22%) and the abolition of the 10% starting rate for individuals together with the corresponding drop in the basic rate band to 20% means that unless profitability is in the region of (say) £45-£50k, then it's not really worth looking to incorporate. Certainly a tax saving running into 'thousands' (as mentioned in the pub) at this point would mean significantly massive profits having to be yielded by the sole trader.

If it was a client asking me, then I would be looking to do a tax planning exercise where you would look at the potential tax/class4 NIC payable if a sole trader then look at the incorporation route and see which is more beneficial bearing in mind the future expectations of the business.

Kind regards
Steve

Cullen

Thank you for that Steve. I will advise him to consult a proper tax specialist.