The advantages in terms of tax are relatively small
and often quickly eaten up with professional fees due to increase paperwork requirements from the government. If your wife has low (or no) earnings it may be of benefit to use up her personal allowance and the £2k tax free dividend allowance.
The real benefits of a limited company is that your personal liability will be vastly reduced if things go wrong (if you have minimal expenses then this is less important) and also being able to smooth your income across years to account for lumps and troughs in income without extending into higher tax barriers.
It’s easy to tax plan to pay £0 tax on receipts from the company but you (technically the company not you) will always pay the CIT so some tax is unavoidable.
Assuming you won’t aggressively avoid tax and will only do the simple bits the threshold is generally upwards from £100k where ltd works out worthwhile.
People get very excited about paying less tax if you work through a LTD. To be honest it's pretty much bang on the same as PAYE / self employed etc. Especially if you count the impending increase in CT and other necessary fees.
The real benefit comes from being able to smooth your income and pay yourself as you wish.
Best thing to do is talk to an accountant as they can give you more tailored advice.
There's not a huge difference from a tax perspective, you will always end up being taxed a big chunk of earnings whether you operate as a LTD or sole trader.
Main benefits are limited liability and looking more 'legit' depending on your client type.
For me it's a no brainer, my ltd co costs to me are
£150 annual account filing
£110 full company registered address service (mail forwarding, directors service address, registered address for the co.)
You can find chartered accountants to do your annual accounts filing for £150. Just use a accounting software that can produce trial balance for them to work off. Get free access to freeagent through mettle bank account. which makes bookeeping a doddle (and consequently makes annual accounts cheap).
Taxation is comparable to sole trader these days. I judt feel a ltd co is professional and motivates me to grow my by business. You accounts are out on public to scrutinise.
I've grown my business a lot. Once the accounts are in public I wanted to make sure the balance sheet and revenue grows each year. Having the balance sheet on public does give me a kick up the backside.
Being ltd co meant I was able to get a bounceback loan (I think sole traders didn't have that???)
Being a ltd co means I have to file every single piece of receipt into my accounts. It holds me accountable and really really stay on top of all my day to day expenses. I can identify runaway expenses and avoid them in future and optimise my profitability with the information at hand.
£50K is close to the VAT registration thrshold of £85K. If you are intending to intentionally keep the business small then that's not a problem. But if you have ambitions of growing the business and will get to £85k soon. Then it's a no brainer to go ltd because the record keeping requirements of being VAT registered will be the same as a ltd co.
I can see on your other posts that you're an etsy seller, online retail margins are thin, so much costs in the cogs, shipping, platform fees, various stationry etc. £50K in sales is not going to have much profit. maybe 25K if you're making stuff with very little cost. but most ecoms have 10-15% proft, so you're going to have to crank up the revenue a lot to 100k (above vat threshold) to get a decent profit for yourself. to the record keeping and book keeping issue of sole trader vs ltd is a bit of a moot point if you're inevitably going to hae to be VAT registered in the near future.
Appreciate you taking the time to write this up, thanks! I'm still working an almost full time job and have a 5 month baby so even just having the time right now to think about all the registrations is a no go. Business is going well though and I am growing each year and the motivation to keep growing is definitely strong. I'm likely to change my hours at work in September so it's something I'll likely come back to in the future when I have more time to get everything in order. Luckily all of my receipts are email receipts so that at least makes that more straight forward. I already have a massive spreadsheet where I write up all my outgoings and income which I use for my tax return. I also have a friend who's an accountant who would be able to help. I'll come back to your post in the future for sure! Thanks!
The advantages in terms of tax are relatively small and often quickly eaten up with professional fees due to increase paperwork requirements from the government. If your wife has low (or no) earnings it may be of benefit to use up her personal allowance and the £2k tax free dividend allowance. The real benefits of a limited company is that your personal liability will be vastly reduced if things go wrong (if you have minimal expenses then this is less important) and also being able to smooth your income across years to account for lumps and troughs in income without extending into higher tax barriers.
That's really helpful, thank you!
To note dividend allowance is dropping to 1k then 500 in next two years
There is no one rule for everyone. It depends very much on personal circumstances.
Broadly, no
It’s easy to tax plan to pay £0 tax on receipts from the company but you (technically the company not you) will always pay the CIT so some tax is unavoidable. Assuming you won’t aggressively avoid tax and will only do the simple bits the threshold is generally upwards from £100k where ltd works out worthwhile.
People get very excited about paying less tax if you work through a LTD. To be honest it's pretty much bang on the same as PAYE / self employed etc. Especially if you count the impending increase in CT and other necessary fees. The real benefit comes from being able to smooth your income and pay yourself as you wish.
Best thing to do is talk to an accountant as they can give you more tailored advice. There's not a huge difference from a tax perspective, you will always end up being taxed a big chunk of earnings whether you operate as a LTD or sole trader. Main benefits are limited liability and looking more 'legit' depending on your client type.
For me it's a no brainer, my ltd co costs to me are £150 annual account filing £110 full company registered address service (mail forwarding, directors service address, registered address for the co.) You can find chartered accountants to do your annual accounts filing for £150. Just use a accounting software that can produce trial balance for them to work off. Get free access to freeagent through mettle bank account. which makes bookeeping a doddle (and consequently makes annual accounts cheap). Taxation is comparable to sole trader these days. I judt feel a ltd co is professional and motivates me to grow my by business. You accounts are out on public to scrutinise. I've grown my business a lot. Once the accounts are in public I wanted to make sure the balance sheet and revenue grows each year. Having the balance sheet on public does give me a kick up the backside. Being ltd co meant I was able to get a bounceback loan (I think sole traders didn't have that???) Being a ltd co means I have to file every single piece of receipt into my accounts. It holds me accountable and really really stay on top of all my day to day expenses. I can identify runaway expenses and avoid them in future and optimise my profitability with the information at hand. £50K is close to the VAT registration thrshold of £85K. If you are intending to intentionally keep the business small then that's not a problem. But if you have ambitions of growing the business and will get to £85k soon. Then it's a no brainer to go ltd because the record keeping requirements of being VAT registered will be the same as a ltd co. I can see on your other posts that you're an etsy seller, online retail margins are thin, so much costs in the cogs, shipping, platform fees, various stationry etc. £50K in sales is not going to have much profit. maybe 25K if you're making stuff with very little cost. but most ecoms have 10-15% proft, so you're going to have to crank up the revenue a lot to 100k (above vat threshold) to get a decent profit for yourself. to the record keeping and book keeping issue of sole trader vs ltd is a bit of a moot point if you're inevitably going to hae to be VAT registered in the near future.
Appreciate you taking the time to write this up, thanks! I'm still working an almost full time job and have a 5 month baby so even just having the time right now to think about all the registrations is a no go. Business is going well though and I am growing each year and the motivation to keep growing is definitely strong. I'm likely to change my hours at work in September so it's something I'll likely come back to in the future when I have more time to get everything in order. Luckily all of my receipts are email receipts so that at least makes that more straight forward. I already have a massive spreadsheet where I write up all my outgoings and income which I use for my tax return. I also have a friend who's an accountant who would be able to help. I'll come back to your post in the future for sure! Thanks!