How Do You Save Paying National Insurance ?

Posted by: on Aug 25, 2012 | No Comments

I was reflecting on what work I had done this week and thought it would be useful to pass on a client scenario I researched this week.

A private client who is employed as a company director at a medium sized company changed employer last year. He earned above the higher rate tax band in both companies. Directors often pay national insurance contributions (NIC) cumulatively so potentially 12% employee national insurance paid in the basic rate tax band at both companies. I investigated whether we could get him a NIC rebate and concluded that if the second employer pays NIC on a cumulative basis you can send a letter to HM Revenue & Customs (HMRC) to request a rebate.

That lead me to thinking of the other potential savings you can make on national insurance contributions:

If you have two or more jobs during the tax year ending 5th April 2013 you can earn approx £7,500 in each job before you pay NIC;

If you have a job and are self employed during the tax year ending 5th April 2013 you can earn approx £7,600 before you pay class4 NIC on the self employment (plus the approx £7,500 in the job before you pay NIC);

If you earn less than £5,564 profits from self employment in the tax year ending 5th April 2013 you can write to HMRC to get a rebate of your class 2 NIC;

If you are employed and self employed in the same tax year and are a higher rate taxpayer it is likely that you can get a rebate of Class4 NIC;

If you are a Director/Shareholder of a small Limited Company you can pay no Tax and no NIC up to the NIC personal allowance and pay no NIC on dividends. There are a lot of other factors affecting your decision to set up a Limited Company and you can refer to my other blog for that.

As always Sir Tax Accountants in the Camberley area will do everything we can help to reduce your taxes so feel free to contact me if you require any clarification of the above on 01276 451465, [email protected]

Sole Traders – Consider 45p per mile

Posted by: on Oct 26, 2011 | No Comments

Are you are a sole trader and have turnover below the VAT threshold (currently £77,000) ?

If the answer to that question is yes then next time you purchase a car for business use you should consider the tax benefits of claiming 45p a mile instead of claiming the usual fuel, insurance, servicing, road tax, etc expenses and capital allowances.

When you cannot claim Vat on the fuel you use, in many cases recording your business miles and claiming 45p a mile is more tax efficient than claiming all of your expenses.

If in doubt contact your accountant for a more detailed assessment.

Sir Tax accountants in Camberley are proactive in looking for ways to reduce you tax liability. Contact [email protected] 01276 451465

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

Posted by: on Nov 24, 2010 | No 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