If I asked you what you thought a professional, trustworthy business is; many would say a limited company. But why is this, and most importantly how can you profit from it?
Your first and and foremost way to profit is, if you were to become a limited company, you may be able to save tax.
Take Mr Smith. He is expecting to make a taxable profit of £35,000 in the year to 5 April 2013. He would have to pay £5,379 in tax, but pay a further £2,466 in National Insurance on his tax return. This adds up to £7,845 tax as a self employed person, or 22% of his income. If he had traded as a limited company in the year, he wouldn’t have received a bill for the National Insurance and his tax (if his accountant structured the business effectively) would have been £5,503, or 16% of his income.
These saving amounts to £2,342 in one year and means you keep an extra 6% of your income. Even if your taxable profits were £21,000, you will still save £1,082 and keep an extra 5%!
The other side of my question was why do people see these legal tax savers as more professional, and why doesn’t everyone do it? Many freelancers say it’s because of the compliance and reporting requirements that companies are besieged with. But this in turn can be more profitable for the company as it means customers would be more willing to trade with these professionals.
The reporting can be daunting, unless you have an accountant in place. A common misconception with limited companies are the stress that the owner would be under to complete all necessary forms and file them in a timely fashion. As accountants, it is our nature to undertake this burden from you, leaving you free to run your business your way.
On top of the tax savings you make and the prestige associated with Companies, there are many other benefits including;
· Limited liability – your personal assets are separate from your business
· Pension contributions become a taxable expense
· Childcare vouchers are available as a deduction
· There are no Payments on Account to make to the taxman (so no prepaying next year’s tax)
At NLD Accountancy, we take care of all the forms, filing requirements and deadlines for you. You therefore have peace of mind and can run your business. All we ask is for you to record your income and expenses – or alternatively we can do this for you.
If you would like a chat over a coffee about this, just drop us an email firstname.lastname@example.org and we will be happy to discuss your situation.Fiscal year 2012/13 rates and thresholds used in the examples provided are correct at the time of writing.No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this blog post can be accepted by us.
TaggedCorporation Tax , Limited Company