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taxadvisor.uk, Chartered Certified Accountant
Category: Tax
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Experience:  FCCA - over 40 years experience as a qualified accountant (UK based Practitioner)
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I am a sole trader and also on PAYE. WIth a total income of

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Hi. I am a sole trader and also on PAYE. WIth a total income of £11,500 aprox. We also get tax credits. I want to set up a second business... Should I do it as a sole trader again (but will that affect my tax credits) or should I set up as a Limited company so I can let the the company grow before I take any kind of income from it? What is most cost affective..
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Many thanks

Customer: replied 12 days ago.
thanks

Thank you for your question.

It does not make a difference whether you trade as a sole trader or as a LTD company if you need the funds to support your income.

If you trade as a sole trader then profit shown on self assessment would be taken into account when assessing what you can claim.

If you trade as a LTD company then your salary and any dividends you take from the company will be considered. The advantage of running business as a LTD company is that you could defer or suspend dividends if you didn't want additional funds to supplement your income.

My aim is to give you a professional service. I hope this is helpful and answers your question.

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Customer: replied 12 days ago.
So if I expect my new company to make £4000 profit. would it be better to set up as a limited company as there would be no corporation tax. and I could defer any salary or dividends.
would the cost of filing a return for company outweigh the savings of being LTD

Thank you for your reply.

Company profits would attract corporation tax at 19% as there is no tax free allowance for companies.

There are costs associated with filing of company accounts. You should look at a company scenario as medium to long term.

I hope this is helpful and answers your question.

Customer: replied 11 days ago.
i really dont know what to do?!

Thank you for your reply.

Either way, income would be taxed whether you trade as a LTD company or a sole trader.

As LTD company you only have to declare salary/dividend you draw from company on your tax return, whereas as sole trader you report profits from self employment on your tax return whether you draw any money fom the business or not.

I hope this is helpful and answers your question.

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