Switch from LTD to Sole Trader

Londina

I read everywhere that it's better to work under a Ltd instead of Sole Trader but if the net profiit is around (let's say) £3000, isn't better to be a self employed since the profit is less than the personal allowance of £11K ?
Otherwise under a LTD there is corporation tax of £600 to pay.

What do you think?

MarieNoelle

Always best to look at each specific situation rather than make assumptions that a Ltd co will save tax.
If this is the only income for the individual of course it doesn't make sense to incorporate (from a tax perspective, there may be other factors to consider).

Londina

MarieNoelle said:

If this is the only income for the individual of course it doesn't make sense to incorporate (from a tax perspective, there may be other factors to consider).

exactly my thought, the only income for the indivual with very little profit below £11K, I don't see the point of incorporation where there is no threshold for corporation tax

mskaat

Londina said:

MarieNoelle said:

If this is the only income for the individual of course it doesn't make sense to incorporate (from a tax perspective, there may be other factors to consider).

exactly my thought, the only income for the indivual with very little profit below £11K, I don't see the point of incorporation where there is no threshold for corporation tax

Also remember, the LTD company is an entity separate from the owners. It also operates under an applicable Companies Act.

burg

There can be other circumstances outside of just the profit within the business. They may have other significant income or may need some separation or protection. Also if set as a limited company then you'd have a basic salary anyway so wouldn't have any CT to pay.

Londina

> @burg said:
> There can be other circumstances outside of just the profit within the business. They may have other significant income or may need some separation or protection. Also if set as a limited company then you'd have a basic salary anyway so wouldn't have any CT to pay.<<<<<<

What do you mean with no CT to pay? Surely if someone makes £1000 profit in the below example after taking a small salary, still have to pay CT?

9000 income
5000 costs
3000 salary

1000 profit

burg

I presumed your example above was £3000 profit but no salary paid.
Assuming they had no other income a basic salary of around £8000 would have been processed anyway so actually creating a loss.
profit £3000
Salary £8000
loss £5000
Therefore no CT owed.

Londina

burg said:

I presumed your example above was £3000 profit but no salary paid.
Assuming they had no other income a basic salary of around £8000 would have been processed anyway so actually creating a loss.
profit £3000
Salary £8000
loss £5000
Therefore no CT owed.

No, assume the £3000 is the only salary, no other incomes, therefore:

£9,000.00 Sales, less:

£5,000.00 costs
£3,000.00 salary
--------------
£1,000.00 profit

so CT to calculate on £1000 profit

burg

Ok but to be able to compare this to a comparable situation for a self employed person you should at least use a salary up to the LEL to minimise profits as it is more tax effective. The above scenario would be poor use of the rules assuming the individual had no other income.

Londina

burg said:

Ok but to be able to compare this to a comparable situation for a self employed person you should at least use a salary up to the LEL to minimise profits as it is more tax effective. The above scenario would be poor use of the rules assuming the individual had no other income.

what I am saying that even if the example has the salary up to LEL level, and assume that after that there is a small profit of £1000, there is still CT to be paid and therefore switching to Sole Trader could be more beneficial