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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4198
Experience:  FCCA FCMA CGMA ACIS
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After 25 years as a CEO I am now left my company and want to

Customer Question

after 25 years as a CEO I am now left my company and want to invest in various companies and also do some consulting maybe only working 2 days a week. I expect to maybe earn £1k per day and also have maybe a capital gain of £20k-£50k per year in the coming years. Should i form a limited company or act as sole trader
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and happy to be able to help you with your question.
If you act as a sole trader your profits will be subject to Income Tax (IT) and your gains on investments to Capital Gains Tax (CGT).
As far as IT is concerned an income of 1K a day will put you over the 150K a year and into the 45% tax bracket and as you are over the 100K limit you will loose your personal allowance to boot. However if you are only making 104K, ie 1K a day two days a week, then you loose your personal allowance at a rate of one pound for every two you go over 100K income. For CGT you have an Annual Exempt Amount (AEA) (not cumulative), currently 11.1K to offset any gains. Thereafter your gains would be taxed at 28%.
If you form a limited company there is no CGT, companies not being liable to this tax. All gains or losses on share trading would be passed through the company's trading account. All profits in the company would be liable to Corporation Tax (CT) at 20%. Presumably you would be a director so any income drawn would have to be paid under PAYE arrangements as directors are employees per se. Alternatively you could pay yourself dividends, but these would still be subject to IT in your hands at your marginal rate of tax and furthermore do not count against the company's CT computation.
There you are, a quick wander through the taxation maze. Using a limited company could significantly reduce tax providing you do not make distributions. Whichever way you turn, however, you are met with Benjamin Franklin's dictum that in life there are but two certainties, death and taxes.
I do hope that my reply has shed some light on your proposals
Customer: replied 1 year ago.
Ok, thanks , but what are 'distributions'?
Expert:  bigduckontax replied 1 year ago.
Distributions; paying yourself salaries or taking dividends both of which activities will expose you to IT. If left in the company the only charge is CT at 20%.
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.