Sole Trader/Partnership to Ltd

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT member discussion
What level of taxable profits as a Sole Trader/Partnership do you start to think "I must advise the client to incorporate?"

Just curious...

Regards

Dean

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Sole Trader/Partnership to Ltd

    We normally do it when the profits take them into higher tax rates or we think they could potentially go into higher tax rates (sometimes it's purely a matter of judgement). This usually involves an exercise of how much tax they are going to pay versus how much tax they would pay had they been incorporated.

    Regards
    Ste
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Sole Trader/Partnership to Ltd

    There are generally a lot more things to consider than the rate of tax, but once a person starts paying tax at basic rate, then it is usually cheaper to pay corporation tax (from a purely tax point of view). After all, 19% is lower than 22%, and that doesn't take account of National Insurance either!

    However, it is worth considering extra costs such as increased accountancy fees (we charge more for a Ltd Co) and admin costs etc. It is also worth considering Class 1A national insurance possibilities (although this can usually be avoided).

    I agree with Peugeot, it usually involves an exercise comparing what tax a sole trader/partnership is paying now, compared to what they would were they trading through a company. Usually a tax saving is the only factor which persuades a person to incorporate.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Sole Trader/Partnership to Ltd

    TWD brings up some very valid points. There are also the increased disclosure required by companies house and their (annual) fees for filing accounts together with the additional accountancy fees for undertaking company secretarial work if the client so requires.

    My experience however usually suggests (99 times out of 100) that these costs are outweighed by the tax advantages incorporation (for now) brings.

    Steve

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Sole Trader/Partnership to Ltd

    Opps I forgot I started this thread :oops:

    Thank you, that has confirmed my thought process.

    Regards

    Dean
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Sole Trader/Partnership to Ltd

    I also take into account whether the sole trader can cope with being a ltd co - differentiating between him/herself and the company as two distinct entities - I actually think that quite a lot can't... and would end up in strife at year end with an overdrawn DCA :shock:

    Also when are they going to change the rules about directors and minimum wage? When that happens, I think that virtually all tax advantages will disappear :cry:

    Claudia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Sole Trader/Partnership to Ltd
    claudialowe wrote:
    Also when are they going to change the rules about directors and minimum wage?

    Are they? :? Can't see how they will make that stick?

    Regards

    Dean
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Sole Trader/Partnership to Ltd

    What a OMB - say lorry driver or subbie being paid for 40 hours a week and only taking home £5K pa in salary as opposed to £10.5K under minimum wage.

    They will change it - just remember you heard it here first :D

    Claudia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Sole Trader/Partnership to Ltd

    If an employee sign's a contract to confirm they are happy with their remuneration package I can't see how the Revenue can enforce it. Agreed they might try, just can't see them winning a case on it though.

    Tis a good arguing point though.
    Typical accountant v IR arguement.

    Regards

    Dean
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Sole Trader/Partnership to Ltd

    Sorry to butt in guys - what's OMB
    :?
    Ta!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Sole Trader/Partnership to Ltd

    Owner Managed Business.

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Sole Trader/Partnership to Ltd

    or One Man Band :lol:

    Claudia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Sole Trader/Partnership to Ltd

    Very good Claudia - I hadn't thought of that one!!!

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