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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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I am currently a sole trader for the last 2-3 yrs. Last

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Hello Pearl. I am currently a sole trader for the last 2-3 yrs. Last years my turnover has been consistent at around £70K. But this financial year 2016/2017 - in last 4-5 months my projected turnover has jumped to £140 (based on big orders in hand) - plus more for the smaller orders. if we say this is for 1/3rd of the year - it is projected at may be 3 times this to financial year end. I am in discussions with my accountant about Ltd company(ies) structuring to minimise my tax liabilities. We cannot come upwith enough company related expenditure to offset against a potential income of £300-£400K (projected) and at present my tax liability (which before this was on lower income band) will suddenly exceed the £43K band and attract higher rate corporate tax. What my friend has done is form a holding company (which shields his funds) and he is taking the view point of retaining all profits in the holding company on an indefinite basis) - so if we are correct no tax due until one draws down funds. Is this the best strategy for me - as I do not want to put funds in a pension plan (which is locked away potentially - you are still taxed at 20% on drawing down nor do I want to buy company cars (which will depreciate). Please advise. Thank you. Raj
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Submitted: 7 months ago.
Category: Tax
Expert:  bigduckontax replied 7 months ago.

Hello Raj, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

Is you business registered for VAT? In its old format it was below the turnover threshold at 82K, but now it clearly breaches that so registration and VAT accounting are now mandatory.

Using a company minimises your personal tax exposure and as it is a separate legal entity places a barrier between you and your business activities should there be some disastrous outcome. I would suggest that a company is the way forward; Corporation Tax is currently 20%. Remember that if you are a director of the company you are an employee per se and must be remunerated through PAYE channels. Another accounting complication to get around!

You are correct that these days pension contributions are only allowable at the basic rate of tax and the annual limit is steadily reducing, now standing at 40K. With interest rates at an all time low returns on pension funds are stagnant.

I do hope I have covered everything in your question. If not do not hesitate to follow up. I do hope that you have found my reply useful.

Customer: replied 7 months ago.
Hello Keith . Thank you I am aware of these via my accountant. As we do not have enough business expenses or company related purchases (I work from a home office and have no significant overheads) - we are looking for legitimate ways via tax planning to reduce the tax burden. At present say the turnover is £400,000 we will only be able to coming up with offsets of around £50,000 to £100,00. So £300,000 is potentially liable. Can you please advise that setting up 2 Limited companies and retaining all profits in holding company is the best short term strategy and then funds would only by drawn down at a future date either when there is an emergency or when tax climate is more favorable ? Or can you suggest other strategies/investment vehicles we can look at for tax planning. I am averse to stock exchange /unit trust related investments too voltatile)
Customer: replied 7 months ago.
Sorry Keith missed reply to your question regarding VAT - we will be registering at the same time as with Limited company set up
Expert:  bigduckontax replied 7 months ago.

Well, I have to tell you Raj, that the private pension route is one of the best methods of tax avoidance! The company can make these direct up to the annual limit, currently 40K, and they are allowable against the Corporation Tax (CT) assessment. I cannot go much further as I am not licenced to give investment advice save in very general terms (like stick it in the building society); I am not an Independent Financial Adviser.

I cannot see any point in running more than one company, it seems an over complication save, of course, if the respective turnovers are below the threshold then VAT accounting is eliminated. By the by, if you work from home then the running costs of one room can be offset against CT liability.

I do hope we are moving forward.

bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3381
Experience: FCCA FCMA CGMA ACIS
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Customer: replied 7 months ago.
Thank you all completed - please can you confirm my final charges and do I need to unsubscribe now as I have all I need ?
Expert:  bigduckontax replied 7 months ago.

Thank you for your support.

No need for further action on your side, you have rated me, you have been charged for the advice and I have received my proportion.

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