When is it right to become a limited company?

[AlicanteLullaby]

I established my private psychology practice last year. All things considered, it's going pretty well, better than I expected. I will turnover about £55000 this year, have about £10000 of expenses and pay myself £1600 pcm. So, quite a big surplus that I will keep in the business account, in case of needing to buy equipment, needing time off work etc. When I am working full time in a couple of years, I hope to turn over £100000, but will have more expenses (admin support?).

Is it now worth establishing a limited company or am I just as well off as a sole trader?

Thanks :)

Sorry

I just don't give a shit

Laters

"ltd co is best at around 100k income. Benefits lessen as you approach 150k"

thats what I read

then you admitted that wasn;t right

then you said some stuff about marginal rates of tax which in my very humble opinion doesn't make any difference to the decision about whether to incorporate.

I really commented very little to all this until it became obvious that some posters had been left with the impression that "ltd co is best at around 100k". Now they may be mistaken to listen to anything you said but none the less they did so I feel have to correct it.

I just don't give a shit

I'm not bonkers.

Who knew a thread about tax would be such surreal entertainment.

I tell you, the XMas parties at accountancy firms are wild. We just keep it very very quiet from the public... and don't invite lawyers.

Accountants throw great parties - we are very good at getting value for money out of venues.
And yup, 26 accountants staying in a hotel on a 4 week audit is quite a scary thing

I don't think I saw more drunks or more affairs than when I was working in practice - except possibly when I was in advertising

I once taught on a accountants residential course near Liverpool during the world cup. It wasn't pretty teaching the morning after England got beaten by Germany on penalties.

Just coming back on to clarify something - and thanks for the advice so far.

Presuming dividends are taxed at the higher rate, then I still don't fully understand how becoming a Ltd Co would be of benefit, given that the NI I currently pay is v little anyway - so that saving wouldn't amount to much. So we'd only be talking about a saving of a few hundred a year, surely and then that saving would be 'lost' on the accountant fees?

Otherwise anything earned by me or the business will still be taxed whether I take it in salary and dividends or - as a sole trader - it's all taxed anyway?

What am I not understanding? I'm not sure off the top of my head what the NI contributions are per year but I think it's around £3,500. Would be coming a Ltd Co save me all of that or only a proportion of that? Would the NI saving be the main reason to become a Ltd Co and not the tax?

(You can tell I'm not an accountant nor v good with figures!)

Currently as a sole trader you pay income tax and class 4 NI on all of your profits over £9000 ish, as well as class 2 NI of a couple of pounds a week
so your main tax rate is 29%

If your business becomes a limited company,
it pays you a salary of £9k - on which you pay no tax and the company has that as a tax deductible expense.
THe company then pays tax on all of its profits at 20%
and most of te profits are distributed to you with no further tax to pay
so the main tax rate is 20%

so 9% of your profits is the headline saving.

Assuming you keep your records neatly and find a good accountant, your annual charge should be a couple of hundred pounds, as against a saving of several thousand ....

AND
as a Limited company, you and your personal property - like house - are protected from any problems the business has.

Also, if the business grows, it can take on more shareholders and or employees - which you are slightly at arms length from

for tax reasons, my kids may soon taking dividends from my business

Thanks TalkinPeace and and Kewcumber for the information. I think I get it now (although got a bit distracted there for a while!).

As an aside, should my accountancy fees really be a couple of hundred pounds a year? I keep very neat records, and for my ST tax return, plus income/expenses on a rental property my accountant charged £500. He says closer to £1000 if I become a limited company.

Have I misunderstood or am I overpaying on accountancy fees here?!

It depends where you are, what the competition is like, how many transactions you have, whether you do any of the bookkeeping yourself etc. You wouldn't get it done for a couple of hundred around here.

It also depends on whether your accountant is a sole trader or a full practice with office and overheads.

Would ask around anyone you know who is self employed locally.

Alicante
I'd ask him for a breakdown of the fees and what will actually change.

As a sole trader there is just a single return

as a limited there is the CT return, the iXBRL accounts, the Companies House submission, the PAYE/RTI stuff and the directors SA return
BUT
if the client keeps files in good nick the amount of hours should not be too bad.
See if you can get some email quotes from the folks on UKBF who are taking on clients.

I charge less than you are paying, but I work part time from home so have very low overheads!

Me too Talk! I'm begining to feel a but multiple personality'ish - you're not me are you? [suspicious]

feel reassured and supported on the ebay business forums in the good old days we would all pile in to support a good post and trash a bad one ...

I've never even heard of the ebay business forums?!

my original home
community.ebay.co.uk/t5/Business-Seller-Board/bd-p/21900001545

AllicanteLullaby

As another accountant I have been reading this thread but I haven't waded in previously as Kewcumber and Talkinpeace have said it all (and shot down the incorrect advice given at one stage by another poster).

Just wanted to say that a couple of hundred pounds is very very low for accountant's fees for limited company accounts. Round here the going rate for straightforward sole trader accounts is £250-400+VAT, and for straightforward limited companies around £700-800+VAT. You certainly wouldn't get anyone qualified doing it for a few hundred quid round here, and I am not in a city.

There is a tax saving through incorporation at around £15k profit per annum but very little and it would be wiped out by extra fees. The savings outweigh extra fees around £18k profit pa in my experience.

Thats interesting nickname - I must admit I use £20k as my mental benchmark though tbh I've never actually worked it out properly!

I agree that around here you'd be unlikely to get it done for a couple of hundre pounds - I have done accounts myself for this price but they were verging on a special purpose vehicle with two sales invoices and about 4 purchase invoice and no payroll.

You could get ltd company accounts done for less than £700-£800 but only fairly straightforward ones and not a lot less. I don't think the issue is whether you are in a city or not but how much capacity and competition there is.

Kewcumber - I didn't work it out myself but use a wonderful table that is produced in the course notes for a course I go on each year . It's worth the fees for that alone! Obviously I could work it out but why bother when someone has done it for you!

Ooh what course is that then... [nosy emoticon] We should have a self employed accountant thread but we might give away too much to lurkers and find them doing it themselves...

kewcumber - have you heard of accountingweb? Accountant's forum, very useful at times. Some very basic advice is given to 'punters' but generally it is an accountant to accountant forum.

If you pm me your location I can let you know about the best courses I've been on with regard to tax.

Ooh I must get back into reading that. Going to courses is always a pain to fit into my diary though.

Yes I love accountingweb but have never been on any of their courses.

No, the courses aren't from accountingweb. I do find the "any answers" section very useful though, especially when you want to re-assure yourself you're not having a senior moment. Also very good for general cpd to be aware of issues you may not come across regularly.

The courses I go on are generally ICAEW local society courses but they do lots with really good speakers, such as Rebecca Benneyworth and others of equal calibre. And they are good value compared to course providers such as Merica.

I've heard very good things of Rebecca Benneyworth.

Some of the any answers are very funny. Especially when people who must be pretending they are accountants ask questions which make it very clear that they can't possibly be.

It always make me want to shriek "Liar Liar pants on fire!"

But I resist