2. Helen Rowe Accountancy
Tax
and
Repor7ng
Summary
Sole
Trader
Limited
Company
Income
Sources
Business
Profits
are
taken
as
personal
income
Company
pays
you
a
salary
as
an
employee
Excess
profits
can
be
distributed
to
shareholders
as
Dividends
Tax
Income
tax
on
taxable
profits
of
your
business
Na:onal
Insurance
Class
2
and
Class
4
Employees
pay
PAYE
and
NI
on
salary
Higher
rate
taxpayers
pay
addi7onal
tax
on
dividend
income
Corpora:on
tax
on
taxable
profits,
employers
NI
on
salaries
Repor7ng
No
requirement
to
prepare
or
file
accounts,
a
simple
tax
return
is
submiNed
to
HMRC
Accounts
are
private
and
only
visible
to
the
owner,
your
accountant
and
HMRC
File
formal
annual
accounts
as
per
the
Companies
Act
and
an
Annual
Return
at
Companies
House
(public
record)
HMRC
require
a
Company
Tax
Return
and
Tax
Computa7ons
with
full
accounts
which
must
be
submiNed
using
its
own
or
specialist
soRware
Increased
accountancy
fees
3. Helen Rowe Accountancy
Sole
Trader
Limited
Company
Personally
liable
for
all
debts
of
the
business
Shareholders
are
not
personally
liable
for
the
debts
of
a
Company
Can
use
a
personal
bank
account
Must
open
a
business
bank
account
(fees)
Can
offset
any
trading
losses
against
other
income
in
current
or
prior
years
Can
offset
trading
losses
against
its
other
income
but
not
against
your
income
as
an
individual.
Can
only
carry
forward
any
losses.
Can
withdraw
cash
without
any
tax
effect
Taxed
on
any
income
withdrawn
from
the
company
and
any
shares
given
at
less
than
market
value
No
op:ons
on
how
to
extract
profit
Mul:ple
routes
in
which
to
extract
profit
in
a
tax
efficient
manner
including,
salary,
dividends
and
7ming
of
profit
extrac7on
Other
Financial
Considera7ons
4. Helen Rowe Accountancy
Consider
two
illustra7ons
showing
the
differences
in
tax
due
between
a
sole
trader
and
a
Company
I
have
assumed
no
other
income
or
any
other
tax
credits
that
an
individual
might
receive.
Financial
Illustra7ons
1st
Illustra:on
Business
Profits
of
£25,000
2nd
Illustra:on
Business
Profits
of
£50,000
7. Helen Rowe Accountancy
May
be
able
to
claim
the
Employment
Allowance
(introduced
in
2014/15)
which
is
a
relief
from
paying
any
Employers
NI
on
the
first
£2,000
of
contribu7on
Can
have
flexibility
to
set
up
Company
schemes
for
any
employees
–
for
example
Company
pension
schemes.
Profits
do
not
have
to
all
be
withdrawn
as
a
dividend,
you
have
the
op7on
to
take
a
dividend
when
you
want
to
so
can
have
more
effec:ve
tax
planning.
Limited
Company
Considera7ons
8. Helen Rowe Accountancy
You
have
flexibility
to
structure
how
you
withdraw
cash
from
your
Company
• In
the
examples
I
have
assumed
salary
equal
to
the
current
Personal
Allowance
which
is
most
tax
efficient
in
these
illustra7ons
(assuming
no
other
income
or
other
employees)
• The
beneficial
tax
treatment
of
dividends
is
an
area
that
may
be
looked
at
in
the
future
but
structuring
your
payments
in
this
way
is
very
common
• An
accountant
can
advise
you
on
how
best
to
structure
your
payments
Dividend
vs
Salary
9. Helen Rowe Accountancy
Goodwill
benefit
reduced
• Prior
to
December
2014,
a
significant
benefit
of
incorpora7on
was
that
you
could
value
goodwill
in
your
business
on
incorpora7on
and
claim
Entrepreneurs
Relief
on
the
CGT
liability
therefore
reducing
any
tax
due
on
this
amount
to
10%.
The
goodwill
value
could
then
be
drawn
out
of
the
business
as
cash
tax
free.
• In
addi7on,
the
goodwill
could
be
amor7sed
through
your
company
accounts
as
a
tax
deduc7ble
allowance.
• The
Autumn
Statement
has
now
prevented
this
from
happening
going
forward.
• You
can
s7ll
value
goodwill
in
your
business
but
this
will
now
be
subject
to
a
CGT
liability.
Recent
Changes
10. Helen Rowe Accountancy
Capital
Gains
Tax
Poten7al
gains
on
incorpora7on
need
to
be
considered
• Capital
Gains
Tax
Liability
may
arise
if
you
transfer
certain
assets
(including
goodwill)
into
the
Company.
• The
most
likely
assets
that
may
give
rise
to
a
gain
are
freehold
or
leasehold
premises
and
goodwill.
• Assets
should
be
transferred
at
market
value
and
a
gain
will
incur
if
this
is
greater
than
cost.
• Moveable
assets
will
only
be
subject
to
CGT
if
greater
than
£6,000
but
they
are
unlikely
to
have
a
value
greater
than
cost.
• You
may
be
able
to
claim
some
tax
reliefs
to
defer
or
reduce
any
gain
if
above
the
annual
exemp7on
(currently
£11,100)
• You
should
talk
to
an
accountant
if
you
think
this
may
be
an
issue
for
you
11. Helen Rowe Accountancy
As
profits
increase
it
is
more
tax
efficient
to
trade
as
a
Limited
Company
Conclusion
• Each
individual
has
different
circumstances
• There
is
no
‘magic’
profit
number
which
means
now
is
the
right
7me
to
Incorporate
• An
accountant
can
advise
on
when
it
may
begin
to
be
beneficial
for
you.
• Weigh
up
the
tax
advantages
versus
the
increased
fees
and
bureaucracy
When?
What
Else?
12. Helen Rowe Accountancy
For
more
informa7on
please
contact:
Helen
Rowe
Accountancy
helenroweaccountancy@virginmedia.com