Do You Want to Save Tax ?

Posted by: on Jul 6, 2012 | No Comments

The press have had a field day over the Prime Ministers personal attack on Jimmy Carr over legally saving tax. You will have to decide for yourself whether you think it is morally wrong or not. You also will have to decide yourself whether the HMRC tax settlements with big companies like Vodafone is morally acceptable or not. Mr Cameron is not shouting too much about that is he ? And he refused to comment on Take That star Gary Barlow’s tax affairs – saying it was a different case. It puts a whole new slant on the phrase ‘Take That’.

So what should small business owners do to legally save tax ? If you start a business from scratch it is often a good idea to to start as a sole trader to prove your business concept and have the flexibility of self employment until you have established your business foundations. When you are confident of the resilience of your business you should consider the tax saving possible through converting to a Limited Company. I usually suggest that sole traders consider incorporation after reaching profits in excess of £30,000 (dependant on your circumstances). Various factors can influence the timing of your incorporation, eg do you use a registered childminder hence qualify for childcare vouchers, or would you benefit from a company pension, etc. Before you decide to go ahead with incorportion you should consider the pro & cons. See my earlier blog re the pro & cons of incorporation.

Have you got a family member who could make a contibution to business, and hence pay them wages and/or give them some company shares. Could you use company resources to develop products or process such that you qualify for research and development tax credits ? This can offer very attractive tax incentives. High end TV and computer game designers can also also benefit from tax breaks introduced in the budget. Make sure you consult with your accountant to benefit from these and other more advanced tax strategies.

Sir Tax Accountants of course support all legal methods of saving tax. We will help business owners in Camberley and surrounding areas review your business processes and marketing strategies to grow your business profits. After all the higher your profits the more opportunities there are for tax savings.

Sole Trader vs Limited Company – How Should You Structure Your Business?

Posted by: on Nov 24, 2010 | 2 Comments

Are you starting a business ?

That can be quite scary if you have never run a business before.

How do you structure the business ?

The question of whether you set up as a Sole Trader or Limited Company tends to be more involved than you think.

As for all areas of tax planning you should consult your accountants before you take action not afterwards. Sir Tax Acountants Camberley are happy to give advice on the issues listed below.

There are 3 scenarios (not including further options for partnerships):

1       Do you start with the intention of trading as a sole trader until you cease trading or sell the business ?
2      Do you immediately set up as a Limited company ?
3      Do you start as a sole trader with the potential strategy to convert to a Limited Company at a later date when you have proven the growth potential of the business ?

The answers to these questions will inevitably be affected by individual’s circumstances. Key points to note are as follows:

1      Sole Trader

• Operating as a sole trader is the easiest approach from an administration point of view, and gives you flexibility in terms of how capital is introduce and drawn from the business.
• It is easy to start a sole trade business – just make sure you contact HMRC within 3 months of trading to avoid a fine.
• Your legal obligation is to submit a tax return to HMRC by 31st Oct for paper filing or 31st Jan for online filing
• You should adopt the mentality that you are growing your business to sell your business. In some circumstances it is more advantageous from a tax point of view to sell a sole trade business than a Limited company

2       Limited Company

• Operating as a limited company can: offer some tax advantages; limit your personal liability if the company fails; and give you a better level of credibility with your potential customers
• As a director of a Limited Company you have a number of statutory obligations laid out in the companies act 2006. Keeping it simple you have legal obligations to your shareholders, customers, and suppliers, H M Revenue and Customs (HMRC) and Companies House. Eg, you can only draw dividends from the company if there are profits available to do so
• Each year you are required to: submit accounts and a company tax return to HMRC, Accounts and an Annual Return to Companies house; prepare resolutions to declare dividends and other significant company actions; and operate PAYE and submit the associated returns to HMRC
• Due to the extra administrative effort the cost of accounting is significantly higher for Limited Companies than a sole trade business, so you need to have a reasonable level of profit to make the extra cost worthwhile.
• It is difficult to get buyers to agree to buy your shares when you sell a Limited Company. Under these circumstances it is usually less tax efficient to sell a Limited Company when compared to selling a sole trade business

3      SOLE TRADE transferred to LIMITED COMPANY

• Unless you have experience of running a business it is difficult to be sure how successful you will be. Of course you should do market research and assess the risks in your business plan, as covered by my earlier blogs. Unless you are experienced and confident in your ability to grow your business, it is a good idea to start as sole trader and potentially convert to a limited company at a later date
• If you transfer your sole trade business to a Limited Company you are effectively selling your personal business to the Limited Company. In most cases a ‘goodwill’ value will be created.
• You may have to pay capital gains tax on the goodwill value transferred to the Limited Company, be it at a relatively low rate where entrepreneurs relief is available
• The goodwill value that you transferred to the limited company is available in the director’s loan account and can be useful for tax planning purposes.
• For companies incorporated after 31March2002, the goodwill value can be amortised in the accounts to reduce profits. This reduces the amount of corporation tax to be paid, but you should also be aware that this reduces the amount of profits available to be distributed as dividends.

Please make sure you discuss these points in more detail with your accountant