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bigduckontax
bigduckontax, Accountant
Category: Tax
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My partner and I are wondering about the benefits of him

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Hi there, my partner and I are wondering about the benefits of him operating his business through a limited company instead of as a sole trader. Is this something you can assist with?
Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.
Customer: My partner is a tennis professional. He is not yet tax resident in the UK. However, he may spend over 90 days in the UK this year and so become tax resident (we jointly own a property here, and I am a UK tax resident). He was previously tax resident in NZ.
Assistant: Is there anything else important you think the Accountant should know?
Customer: We would like to know the tax implications of incorporating and running his business through a company

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

Back in five minutes to respond.

Right, back!

He could set up a limited company to operate his business. Such a company would be exposed to the UK Corporation Tax (CT) regime at 19%. You may not be aware, but within the EU the UK is considered to be a tax haven with its low rate of CT. Any income drawn by him would have to be through PAYE channels with Income Tax (IT) and National Insurance (NI) deductions made and furthermore the company would be liable for the Employer's element on NI. Such payments would reduce the CT exposure. Dividends up to 2K per tax year would be tax free, but would not count in the CT computation.

The only problem to be faced is ir35, the concept of disguised employment. This is of enormous complexity and frequently misused by HMRC. You can read the full gamut of it here:

https://www.contractorcalculator.co.uk/what_is_ir35.aspx

I do hope that you have found my reply of assistance.

Customer: replied 1 month ago.
Thank you. And how do you get money out of the company that you don't pay in dividends or as salary/wages? What tax is imposed?

The only other way would be for the company to loan money to the director, but the tax consequences can be horrendous unless the loan is repaid within 9 months from the conclusion of the company's accounting period.

Always bear in mind Benjamin Franklin's adage that in life there are but two certainties, death and taxes.

Please be so kind a to rate me before you leave the just Answer site.

Customer: replied 1 month ago.
Thank you. I will do the rating, but have one final question - what about winding the company up to get the funds out?

In theory the sums received would be subject to Capital Gains Tax (CGT) and if he were genuinely going out of business then Entrepreneur's Relief might apply limiting the tax to a flat rate of 10%. Were the sum substantial I could see HMRC invoking ir35 to collect IT at the higher rates of 40% ans even 45%.

bigduckontax and other Tax Specialists are ready to help you
Customer: replied 1 month ago.
Thank you

Delighted to have been of assistance.

Thank you for your support.