Abacus Online June 2002
TO INCORPORATE OR NOT? THAT IS THE QUESTION
Why have the press and politicians been whipping up a storm following the Budget over this question? Well let’s have a look at some “headline” figures.
| Profit Available and Fully Distributed | %age of profit taken by Government | | Ltd Co Salary | Ltd Co Dividend(1) | Sole Trader/Partner | | £ | £ | £ | | £14,615 | 25% | 0% | 19% | | £50,000 | 35% | 21% | 29% | | £100,000 | 41% | 31% | 34.5% | | £300,000 | 44% | 36% | 38% | | £500,000 | 45% | 42% | 39% | | £1,000,000 | 46% | 45.5% | 39.4% |
Notes
(1) Assumes single personal allowance always taken as salary first.
Analysis
Clearly, based on the assumptions that all profits after taxation are needed to support your lifestyle, from a tax perspective trading through a limited company and paying minimum salary and maximum dividends is beneficial compared to being a sole trader up to a profit of £300,000.
Before you jump headlong into the limited company arena, we would caution all those would be directors and company secretaries. Yes there maybe savings and given the right circumstances significant ones are to be made but what other issues should you balance against these? These include such things as: -
Statutory duties of Director/Company Secretary.
Personal use of motor car.
Initial loss of Business Asset Taper Relief for Capital Gains Tax purposes.
What about your pension position?
Could IR35 be an issue?
The conclusion will be a personal one. If you would like to discuss your particular circumstances in more depth why not call Steve Cook one of our Tax Partners.
Taxation Offset
Because of the Budget increase in NI by 1 per cent from next year, we will all pay an extra penny NI for every pound that we earn above approximately 4,800 pounds. For example, if you earn 30,000 pounds per year, you'll pay an extra 252 pounds in NI.
Fortunately, there's a legal way to claw back this cash by exploiting the fact that the duty on a pint of real ale from a small brewery will fall by 14p a pint. Roughly speaking for every 7 pints you drink, you save 1 pound. So, in the example above, you can neutralise the effect of the NI increase by drinking an extra 1,764 pints of real ale each year. This is about 5 pints a night.
Obviously, people who earn more than this will have to drink more. For instance, if you earn 60k per annum, you will have to find room for 10 pints a night.
Happy tax mitigation!
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Please contact us to discuss the above further
Tel: 01753 888211 Fax: 01753 889669 Email: abacus@nunn-hayward.com
Nunn Hayward, Sterling House, 20 Station Road, Gerrards Cross, Bucks SL9 8EL. |
Registered Auditors, Licensed Insolvency Practitioners and authorised to carry on investment business by the Institute of Chartered Accountants in England and Wales. This publication has been prepared as a guide only to topics of current financial and business interest. No responsibility for loss occasioned to any person acting or refraining from acting as a result of any material in this publication can be accepted by us. All rights reserved. If you would like to subscribe to future editions of the Abacus Newsletter then please e-mail your name and address and we will add you to our mailing list. |
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