Becoming a Ltd. company ?

[bert large]

I have been advised by my accountant that it would be beneficial to change status from a self employed sole trader to a Limited company, primarily to avoid Class 4 NI contributions. What he didn't know was how it might affect things such as insurance cost & trade body registrations.

I was wondering if anyone else has done the same thing & if it affected their costs in other areas ?

 

[lame plumber]

it will also affect your trade credit status

 

[cr0ft]

I think trade body costs would stay the same. I can't imagine insurance costs being hugely different. One thing to watch out for though is van insurance. If the van(s) become(s) property of your limited company then it would be normal to register it in the company's name for insurance purposes. The company will have 0 years no claims so expect a hit on your van insurance for the first couple of years. In addition, you yourself will stop accruing no claims which may be a problem if you don't also drive a car.

This was a bit of a shock to me.

Other than that, limited companies have another tax return to complete each year which your accountant will probably charge you more for.

If you currently earn enough profit as a sole trader to take you into the 40% tax band then you will definitely be better off as a Limited Company. You won't pay more than 20% tax on drawings from a limited company. Basically the plan is you take £10k per year out as a wage (taxed at 0% with a bit of NI to pay @ 12.8% ish, employers NI is covered by HMRC up to 2K per year). After this you pay yourself share dividends on which the company has already paid corporation tax @ 20% as they come out of the profits. As an individual you pay no tax on these up to the higher tax threshold. A £40k wage/dividends package from a Limited Company is worth around £60k as a sole trader (once the sole trader pays their income tax and NI).

Hope this makes sense.

As already mentioned, the Limited Company is a separate legal entity and it will start with no credit history. Is this really an issue though? All of my customers pay for their sanitaryware/tiles etc up front so I don't really have any need for credit. If you deal with businesses this may be more of an issue but not for domestic work.

If you find your business growing to the stage expansion is necessary then a Limited Company (in my opinion) provides a much better framework to do that, especially when you start adding multiple drivers onto multiple vans for insurance purposes.

 

[mfgs]

Another thing to add is, if you transfer the van in to the company. You can do that as a personal loan to the company and will be able to take the value of the van out of the company tax free. Obviously when you sell the van it will be an income to the company though.

 

[Millsy 82]

Could you not use the van in your name and pay yourself x per mile? Obviously a healthy sum.

 

[cr0ft]

Not sure how HMRC would view that to be honest. It would certainly incur you a personal tax liability just like a salary which you should probably be keen to avoid if looking to extract money as tax efficiently as possible from a Ltd Company.

As a director you have to be seen to be working in the best interests of the company really so one could say that those sort of things aren't ideal!

I just take the **** on tax avoidance with my wage as much as I can as it's a well known trick to save on the tax bill. I don't really do any tricks elsewhere as to me it's not worth the hassle of explaining them if I get a tax inspection.