Tuesday, 11 December 2012

Saving money by working at home

Normally tax for self-employment is worked out by taking a percentage from the profits that the business makes, which is the money earned by the business with expenses subtracted. Expenses are usually costs that are “wholly and exclusively” for the purposes of trade.

If some business is carried out from home, then some tax relief may be available. HMRC agree that a deduction for household expenses is acceptable, provided that part of the home is solely being used for business purposes.

This does not mean that the business part of the costs must be billed separately or that part of the home must be permanently used for business purposes. However it does mean that when part of the home is being used for business, that’s all you use it for.

Apportioning costs

HMRC will accept that costs can be apportioned and if the amount is small they will usually not be interested in it. For example you can claim £3 per week for use of home, that’s £156 per year with no questions asked.

Although if you plan on claiming any more then there are some things to consider such as:
The proportion in terms of area of the home used for business services, how much is consumed where there is a metered or measurable supply like electricity and how long you use that part of the home for business purposes.

Generally HMRC will accept a reasonable proportion of costs such as council tax, mortgage interest, water rates, rent and general repairs. Additionally allowable costs may include business telephone calls, a proportion of line rental and internet connection if it is used for business purposes.

Any equipment at home, such as a laptop or desk, can have a costs proportioned under capital allowances claims based on the estimated business usage.

Travel from home

Another consequence of working from home will be the impact on your travel costs. The cost of travel from home to work is generally disallowed, as it represents the personal choice of where you live. This will not be affected by doing some work at home, however, if there are no other business premises, then travel costs to visit clients should be allowable. So it really depends on where the business is run from.

Selling the home

Normally when you sell your home, any profit made is exempt from tax if it is your primary place of living. However, when part of the home is used exclusively for business, then that portion of the house will not be exempt. Occasional and minor business will be ignored for this purpose.

To summarise, it is possible to claim some extra 'home' expenses to reduce your tax, but you need to be clear about the rules, keep good records and be reasonable about how much you claim.

If you need more information about this subject then feel free to call me on 01761 436 436.


Thursday, 4 October 2012

Child benefit withdrawal

As part of the reforms to the welfare system, Child Benefit will be withdrawn from households that include certain higher earners beginning from 7th January 2013. In other words these rules will already apply from this tax year 2012/2013. This is regardless of whether you are a single parent or have a partner.

How will they do this?

This will take the form of a tax charge at a rate of 1% of the child benefit per £100 above an adjusted net income of £50,000. Once the adjusted net income exceeds £60,000 the tax charge will be equal to the Child Benefit. This applies even if one partner is earning over the limit and the other one is under and is receiving Child Benefit.

For example if someone has child tax benefits of £1,752 and had an adjusted net income of £57,750, you would first calculate the percentage by taking 57,750 minus 50,000 and divide the remaining 7,750 by 100 which equals 77% (rule of rounding is to round down to nearest whole number). Then you would take 77% of £1,752 which equals a Child Benefit tax of £1,349.

The tax is calculated by reference to weeks therefore it will only apply in the weeks you are eligible for it. For example if a couple gets together and child benefit is already being paid, then the tax will apply for those weeks from the date the couple started living together until the end of the tax year.

Who is a partner?

HMRC have decided that a partner is defined as a spouse or a civil partner or someone that you are living with as if they were a spouse or civil partner.

As long as one partner is in receipt of Child Benefits and either partner has an adjusted net income greater than £50,000 then it is the partner with the income over £50,000 who will be responsible for paying the tax.

What is the effect of the tax charge?

The following table shows how this income benefit tax will affect three different couple with different amounts of adjusted net income.

Partner 1 Income £
Partner 2 Income £
How much
Who pays the tax
50% of benefit
Partner 2
100% of benefit
Partner 1

There is of course concerns that this system is flawed, in the above examples, all three couples earn between them £85,000 yet Couple B is charged 50% of their benefit and Couple C loses all of their benefit. While Couple A retains all of their Child Benefits.

Therefore the most beneficial scenario would be where both partners earn up to £50,000 each for a total adjusted net income of £100,000 with no Child Benefit tax becoming due.

Another potential flaw is who is responsible for paying the tax. With Couple B Partner 2 will pay the tax regardless of who is receiving the child benefits, and with Couple C it will be Partner 1. Therefore you will need to discuss with your partner how much each of you is earning.

What to do if you meet the requirements for the tax charge.

Should you meet the requirements for the income tax charge, you will need to inform HMRC as soon as possible or no later than 5th October 2013, failure to do so can result in a penalty equal to the amount charged to your income tax.

If you feel you would like more information or advice on this subject, help is only a phone call away on 01761 436 436.


Friday, 21 September 2012

Tax credits

For people who are struggling to make ends meet on low incomes, the government can provide tax credits to supplement your income.

These tax credits come in two types. These are Child tax credits and Working tax credits.

Child tax credits.

As the name suggests these credits are available to families and parents, the purpose of these tax credits is to help with the expenses of raising a family.

To be eligible for child tax credits you must be responsible for at least one child.

Child tax credits are made up of the following:

The Child Tax Credit elements
What it means                                
Current maximum yearly amount
Family element - the basic element
It's the basic payment if you are responsible for one or more children.
Child element 
This is paid for each of your children. It is paid on top of the basic family element.
Disabled child element
This is an extra payment for each disabled child you have.
Severely disabled child element
This is an extra payment for each severely disabled child you have. 
It is paid on top of any disability element.

As you can see, you get a basic amount, followed by a payment per child and then an additional amount if your children are disabled.

However if your earnings exceed £15,860 your tax credits will be reduced at a rate of 41% of the amount you are earning above £15,860, for example if you earn £16,860 you will lose £410 of your tax credits being 41% of the £1,000 above the threshold.

Working tax credits

These tax credits are available to those on low income, but are also working.

To be eligible for working tax credits, you must be working 30 or more hours per week if you’re at least 25 or more than 16 hours per week if you’re at least 16 and have a child or are disabled. However, for a couple with children, you must total 24 hours a week between you, with one of you working at least 16 hours per week.

They are made up of the following:

The elements
Who it applies to                                          
Current maximum yearly amount               
Basic element
The basic amount if you qualify for Working Tax Credit.
Paid if you make a joint claim and is on top of the basic element.
Lone parent element 
Paid if you're a single parent bringing up children on your own.
It is paid on top of the basic element.
30 hour element 
An extra payment if you work at least 30 hours a week. 
It also applies if you're in a couple, with at least one child, and you work at least 30 hours a week between you. But one of you needs to work at least 16 hours or more a week.
Disability element
An extra payment if you work and have a disability.
Severe disability element
An extra payment if you work and have a severe disability.
If you're in a couple, the person with the severe disability doesn't have to be working - as long as one of you is.
Childcare element

An extra payment if you pay registered or approved childcare.
Up to 70% of your costs, subject to a maximum limit as follows:
·                     £175 per week if you're paying for one child
·                     £300 per week if you're paying for two or more children

As you can see you have a basic amount that depends on whether or not you are single or have children, followed by an extra amount if you work more than 30 hours per week then disability and help paying for childcare while you are out working.

The limit before you start losing working tax credits is less generous than for child tax credits, with you only having to earn over £6,420 before you start losing tax credits.

If you are in receipt of both working and child tax credits you would use the lower limit of £6,420 before you start losing tax credits.

For example if you were a single parent with 1 child working 16 hours per week at the minimum wage of £6.08 per hour, you would be entitled to the £545 family allowance, £2,690 for having a child, £1,920 for the basic working tax credit and a lone parent allowance of £1,950. This adds up to a total of £7,105 tax credits per year, and your employment would be earning £5,059 per annum, which is low enough to retain all of your tax credits.

To claim tax credits you will need to fill in a claim form that can be received by calling the tax credits helpline on 0345 300 3900 but the form must be complete and sent back between the 5th April and 31st July to be eligible.

If you require any assistance with the above, or need some more information, be sure to call me on 01761 436436.


Friday, 17 August 2012

Employed or self employed?

This subject is rarely out of the headlines. One of the reasons for this is that the distinction between the two is not defined in statutory law. Instead, reference must be made to numerous Commissioners decisions and appeal cases on the issue.

This debate has been extended with IR35, which seeks to examine the relationship between the worker and the ultimate client (where a Limited Company exists to receive payment on behalf of the worker).
The following tips and practical points should be borne in mind:

Ensure that there is a watertight contract and that this contains a satisfactory substitution clause (we can provide a sample contract, if required).

A self-employed person tends to have some control over how he does his work. He supplies his own tools and equipment, engages in on-going training and incurs advertising costs. The self-employed person should engage in more than one contract during the year(the more clients, contracts or customers the better).

Recognise that the business of defending a tax status tends to be a complex and expensive exercise as there is no satisfactory test in place to determine whether or not someone is self-employed or an employee. HMRC have an extensive list of what may be taken into account here.

If you are concerned about any of the above, or if you feel you would like some additional advice, please do not hesitate to call me,


Thursday, 12 July 2012

Opting to tax property

Usually property is exempt from VAT which makes things simple because you don’t have to register for VAT and worry about VAT returns.

However some people will “opt to tax” which means they will register for VAT and complete returns, why do they do this you may ask?

The short answer is to be entitled to claim input VAT on costs when selling a property.

Basically the VAT rate depends on the type of land being sold as shown below.

Sale/Lease of land: Exempt
Sale/Lease of commercial property: Exempt
Sale of a new (less than 3 years old) commercial property: Standard Rated (20%)
Sale/Lease of a dwelling: Exempt
Sale (including lease over 21 years) of a new (first sale) dwelling: Zero-rated

If you incur any VAT on costs in the course of making a taxable (standard or zero-rated) property sale you can reclaim that VAT. However if it is an exempt sale you cannot.

By “opting to tax” you would change most sales and leases of non-dwellings into Standard rated taxable sales. This allows the business purchasing the property to recover the associated VAT (on construction, purchase renovation and ancillary costs).

A business will not need to “Opt to tax” in order to recover VAT if it is using the property for business purposes, e.g. a factory for the purpose of manufacturing goods.

Most developers will already know that if a residential property has remained vacant for two years, the VAT rate associated with its refurbishment stands at 5%. this, of course, helps to mitigate the developers irrecoverable VAT cost as the sale of refurbished houses is exempt from VAT.

What is less known is the fact that a property that has been vacant for ten years or more can be treated as if the building was new and therefore its disposal - freehold or a lease exceeding 21 years - is taxable at a zero rate.

This enables developers to recover the 5% VAT rate charged by subcontractors as well as a VAT rate of 20% charged on legal and professional services. This is a major saving and is something that should always be kept in mind when buying derelict properties with the potential for refurbishment and re-sale.

If you feel the above would be useful to you and that you would like some more information, please make sure to contact me.


Thursday, 14 June 2012

Company car or mileage allowance?

One question we come across in the field of taxation fairly often, is what is the best way to reduce tax using a car when you own a limited company?

The problem is that there is a substantial number of things to consider that makes the question a lot more complicated. So we will look into each option and show which situations would make each option the most suitable.


After many calculations, we believe that mileage allowance would be the better option in most cases partly because its simple to work out and tax deductible. However if you must have a company car (because you don't want to pay the expenses out of your own bank account, for example) then you better make sure you buy a 'brand new' car, that is cheap to buy, with low emissions (so its going to be small and without any optional extras!) and you don't use it privately at all (not even a penny of fuel for private travel).

Conversely if you buy an expensive used car for less than its original list price (say two or three years old), with a big diesel engine, with only small private use (and you cant be bothered to repay the private miles to your company) and if you normally earn enough to pay tax at 40% - you are generally going to pay a lot more personal tax on the car even if there is some tax relief claimed by the company.

Company car

The main advantage of having a company car is that you can put the running costs through your company and therefore reduce the amount of corporation tax you are due. Unless your car happens to be less than 110g/km carbon emissions or an electric car, you will not be able to claim back the whole amount in the first year as with other assets. You may only claim back 18% of the cost per year, (on a reducing balance basis) or if your emissions are more than 160g/km only 8%. This means the tax relief you can gain on your car will come through at a slow rate over a long period of time.

Private taxation of a company car

If your car is put through your company and is made 'available' to you for private use (whether or not you actually use it privately) triggers the 'Car benefit' rules. If you you do use it for private trips you will find yourself hit with a taxable 'fuel' benefit.

The Car benefit is calculated by taking the list price of your car (how much it would cost brand new) and then multiplying it by a percentage determined by the emissions of your car (with an  additional 3% added for diesel cars) to a maximum of 35%. This means that if you buy a second hand car, you will still be charged as if you bought it brand new, this can quickly outweigh the capital allowances claimed by your company as these are determined by how much the company paid for the car.

In addition to the Car benefit,  you will be hit with a Fuel benefit determined by a basic price of £20,200 multiplied by the same percentage as used for Car benefits. This means that on a 35% car you would need to have private fuel costs of more than £7,000 to have a net gain in your favour. You can repay any private miles to your company and in so doing there is no Fuel charge - but you have to work out your private miles each month and reimburse the company - you cannot do this retrospectively after the end of the tax year!

You can reduce the Car benefit by paying some of your personal money towards buying the car, this will reduce the list price by the same amount, and annual contributions will reduce the benefit calculated by the amount you spend. 

So to make the most of your company car, you will want to either avoid using it for private purposes, or buy a brand new petrol/electric car, with low emissions and list price, and reimburse any fuel you use. If you need some actual figures to help you in your decision, you can click on this link to view a car benefit calculator provided by comcar.co.uk, you can also find a list of percentages for different emissions by clicking here.

Mileage allowance

The other mentioned method was to own the Car privately and claim a mileage allowance. This means you do not put any of the costs through the company, but instead charge an expense depending on the number of business miles you do - and the company will get tax relief as an expense for the mileage claim.

The rate begins at 45p per mile for the first 10,000 miles, and 25p per mile afterwards. You must make sure you don’t charge any more than this, otherwise you will have to pay tax on the excess amount.

The disadvantage of a mileage allowance if that if you have a lot of running costs then you will not be able to claim them against your profits to reduce tax, same goes for the cost of buying the car, you will not be able to claim this either, even if you have bought a car with zero emissions.

So to make the most of a mileage allowance you will need to do a lot of business travel, and have low running costs for the year that can be exceeded by your mileage claim.

The discipline of record keeping

Whichever method you choose, you will be required to keep track of expenses, either costs and personal contributions relating to your company car, or the number of business miles you make, both of which can take up valuable time.

If you feel you still need a bit of advice on the matter, or have any questions about this article, then feel free to call me to shed some light on the subject.


Monday, 14 May 2012

Wife's wages

Where one spouse or partner employs the other in the business (often a husband employing his wife), it is perfectly in order for a salary to be paid to reflect the work done for the business. Often the salary is just below the Income tax or NIC threshold where there is just part-time involvement. It is worth stressing that two important conditions should be observed:

The salary should: 

  • actually be physically paid rather that just making a journal entry through drawings and;
  • be justifiable in relation to the type of work done and the hours spent.

Should the above points not be observed, then you run the risk that any amounts claimed in your accounts could be disallowed - which means that you will be required to pay more tax and national insurance on your profits!

In addition to the above, my opinion is that it makes sense that if wages are going to be paid to the wife, that a 'payroll scheme' is opened with HMRC to formalise the administration of this task and ensure the necessary paperwork is in place so that if some national insurance is desired to be paid - the year will count for state pension purposes.

Whilst there are additional compliance costs, these may secure the result you are after where poor paperwork and definition results in an unforeseen problem for you in the future.


Wednesday, 18 April 2012

Flat-rate scheme

With the VAT rate at 20% and having to be paid every quarter, you may find that it can be a substantial drain on your funds, especially if you don’t have many VAT purchases to offset against it. This is where the flat-rate scheme comes in.

What is the flat-rate scheme

The flat-rate scheme is where you pay VAT at a lower percentage of your VAT inclusive turnover. This means where you would pay 20% of the income before adding VAT, someone in the construction industry would pay only 9.5% but on the total income including the VAT. However if you are in the flat-rate scheme, you will be unable to claim back VAT on purchases as you can under the normal scheme, with an exception that we will discuss below.

Joining the flat-rate scheme

To join the flat-rate scheme your estimated VAT taxable turnover (excluding VAT) will need to be £150,000 or less, this includes income at different rates of VAT such as reduced rate and zero-rated products. Once in the scheme you can stay in until your total business income exceeds £230,000.

However you cannot join the flat rate scheme if you were in the scheme and left in the previous 12 months.

Pros and cons of the flat-rate scheme


The main advantage is that you no longer need to record the VAT that you charge on every sale and purchase as with normal VAT accounting. There is also 1% discount if it is also your first year of being VAT registered (this applies until your first anniversary of VAT registration). Having a set percentage across sales means you will always know how much takings you need to pay to HMRC.


You will find that if you make a lot of zero rated sales and/or make a large number of standard rated purchases, you may find that it is cheaper to stick to the standard scheme.

Flat-rate scheme percentages

As there are many different kinds of business, it is difficult to list them all down without taking up a considerable amount of space, but you can find out from either HMRC or by giving us a call. Bear in mind that the percentage is likely to change each year, so be sure to check each year to avoid making a mistake.

Invoicing with flat-rate scheme

On your invoices, you must show the amount of VAT that you would normally charge on standard rate (i.e. 20%).

Claiming back VAT on capital assets

The exception to the rule you cannot claim VAT back on purchases is that you can claim back VAT on a capital asset purchase if it has a VAT inclusive price of £2,000 or more. This may be more than one asset providing they are part of the same purchase, but cannot be anything you intend to lease, resale or use up in your business.

However if your asset costs more than £50,000 inclusive of VAT you must leave the flat-rate scheme. Remember that if you eventually sell the asset you must charge VAT at the standard rate.

If you require any more information on the flat-rate scheme, or feel you would like to discuss if this will be of benefit to you, please give me a call.


Tuesday, 10 April 2012

Advice on record keeping

It is important to keep records, so that organisations such as the Inland Revenue can be clear on how you received your income, and what income is taxable.

Multiple Bank Accounts

When you perform work, you know that you must raise an invoice for payment. Try to ensure this all gets paid into one main bank account so that all money can be easily accounted for. Record keeping is vital to ensure that when the Taxman or Vatman comes visiting, that he does not tax you on any unexplained income which cannot be tracked back to a sales invoice.

This situation could occur where a business account exists but amounts are paid into any number of other personal bank accounts. The genuine self employed income gets mixed up with other income and information to support income in those personal records is non-existent.

We’ve seen it happen and the Inland Revenue will want to try to tax you on this other income, if you cannot provide evidence as to what it is.

Sales Invoices

Each sales invoice raised for work done should have an invoice number. Ensure that the numbers follow on from each other and keep any that have been spoilt or had to be amended. If any are missing, the taxman will assume that you were paid in cash and that you immediately destroyed the missing invoices to reduce your income. Keep all invoice records even where you have had to make out a new invoice as a replacement.

Other Records

If you are in business it is a good habit to keep ‘other’ records, for example, diaries, quotes etc. also keep all personal bank statements and make a special note of any monies paid into these accounts and from where they came e.g. loans or gifts from family members. Record this as soon as possible after the event – it is always more difficult to remember details at a later date.

The Inland Revenue often treats unidentified amounts as additional income unless you can prove otherwise. This is a classic attack used by the Revenue to get their hands on your money.

If you really feel that record keeping is not your cup of tea, and would rather not worry about the hassle, then why not get us to do it for you?

If you are in doubt as to which records to keep, why not give me a call?


Monday, 12 March 2012

Property tax - an introduction

Recent trends in the housing market have served to boost the popularity of investing in property – while also leaving an increasing number of homeowners liable to taxes such as inheritance tax (IHT)

Property ownership has a number of different tax implications, which is why it is essential to put in place adequate tax planning measures now. This guide sets out some of the key aspects of tax and your property.

Capital gains tax

Your main residence is exempt from capital gains tax (CGT) when you sell it, provided it has been your only or main residence during the whole period of ownership. Various rules allow periods of temporary absence to be disregarded.

Owning more than one property

If you have more than one home, you may elect which is to be your main residence (i.e. exempt for CGT) within two years of acquiring the additional residence. As long as a home has at least some time been your main residence for CGT, the last three years of ownership are added to your exempt period. It may be beneficial for a married couple to own the non-exempt residence jointly as each will be entitled to capital gains tax exemption, on sale of the property.


If the purchase and sale of properties amounts to a trade then profits will be taxed as income in the normal way. In all other cases, disposal will be subject to the normal rules for the calculation of capital gains.

The situation may be complicated where a principle private residence has been let for some time during the period of ownership

Allowable expenses

Expenses allowable in calculating income include interest incurred on loans used towards the purchase of the property (adjusted for any part of private use), rents, rates, insurance, repairs, management and professional fees.

Expenses on improving the property (such as extensions), or those which were necessary to bring newly acquired property to a useable state, all form part of the capital cost of the property.

Tax aspects of property investment

Income arising from land and buildings is generally treated as investment income unless it is from furnished holiday lettings or from property development, or the provision of services such as hotels and guesthouses, in which case it would be classified as trading income. From an accounting and tax point of view, all rental income (except furnished holiday lettings) is treated together as from one ‘property’ business, regardless of the terms of letting. Profits and losses are calculated using the same general accounting rules as for trading, including accruals to cover the timing difference of rent or expenses in advance or arrears.

Allowances for equipment

In general it is not possible to claim capital allowances for fixtures and fittings in a dwelling house. By concession, an allowance is available to cover wear and tear on certain items (such as suites, beds, carpets, curtains, linen, crockery, cutlery, cookers, washing machines, and dishwashers). For such items it is possible to claim either the cost of replacement (not original purchase) or alternatively a global annual wear and tear allowance equal to 10% of the rents received (less certain expenses) on furnished lettings. It is also possible to claim a deduction for the costs of renewal of fixtures, such as baths, toilets and washbasins.

For commercial properties, capital allowances may be claimed in respect of plant and machinery supplied by the landlord.


VAT on land and buildings is a complicated area. Generally sales of commercial buildings less than three years old are standard rated, sales of new residential properties are zero-rated and most other sales and leases are exempt. The VAT provisions on property letting are particularly complex.

If your thinking about investing in property for your business, or just so a bit of extra income on the side, then get in touch so we can discuss the best way for you to proceed.


Thursday, 16 February 2012

Protection scheme against unexpected fees (sole trader)

Investigations by HMRC can happen to anyone in business, and without reason now that random investigations are part and parcel of Self Assessment. In addition, the Government is looking for ways of obtaining additional tax as overall tax revenue is down because of the recession.

These investigations almost always take a year or more to settle and accountancy fees are typically £1,500 or more. This is simply down to the time taken up by HMRC in extensively scrutinising your business and financial affairs. The time and the financial costs are incurred even if the authorities find that your records are correct. There is no come back.

In our efforts to help clients wherever we can, we have come up with Tax Fee Investigation Insurance, this means for a small sum of money we can provide you with the security that should your business become to victim of a HMRC tax investigation, you will not have to worry about the additional accountancy costs that may be incurred.

Why you should get Tax Investigation Fee Insurance

· Annual cover against fees arising from investigations or attendances at inspections.

· Covers Inland Revenue, Contributions Agency and VAT.

· No quibble over limit of cover.

· No small print.... the rules are simple.

· Peace of mind; no unexpected accountancy bills.

· Cover starts from 1st May 2012.

· Prompt action guaranteed.

The Rules

· Cover starts from the 1st May 2012 and runs for one year.

· The Scheme covers any Inland Revenue Aspect Enquiry or Full Investigation arising in that year, and relating to work done by Bijok Accountants. The Scheme SPECIFICALLY EXCLUDES any work undertaken by any other firm, unless covered by written agreement and endorsed in the scheme cover.

· The scheme underwrites fees incurred with Bijok Accountants only during their work in an inspection or investigation, and SPECIFICALLY EXCLUDES fees due to any other firm, unless covered by written agreement.

The principle exclusions to the policy are as follows:

· Claims resulting from accounts, tax returns, VAT Returns having been submitted late without good reason.

· Matters where the Inland Revenue, HM Customs & Excise or Contributions Agency allege fraudulent evasion of tax, VAT or national insurance and pursue that case on that basis or where the insured person or business has acted dishonestly in respect of the accounts or returns rendered e.g. Special Compliance Office cases).

Because of the state of the government’s finances, there is an expectation that more individuals and businesses will be targeted for inspection. This is your opportunity to join the scheme and protect yourself. The amount is only £95 per year. For details on how to join, please contact me.


Changing your business into a limited company

You may be wondering whether or not it would be worth changing your business from being a sole trader into a limited company. Some of the advantages and disadvantages of doing this are as follows:


Tax and National Insurance Savings

It might seem that there is no tax/national insurance benefit to trading as a limited company, but this is in fact not a correct view. Whilst benefits are dependent on your circumstances, the reality is that most people will be saving tax as shown in the table below. Of course, this benefit is minor until you reach profits of around £30,000 and are expecting to maintain this level or expecting your business to carry on growing. This benefit is because limited companies do not pay National Insurance contributions or a higher rate of tax.

The table below should provide you with a good idea on how much you can be saving by making your business into a limited company during 2012/2013.






Tax and NI payable:





As sole trader





As company





Potential saving





Protection of Personal Assets

There are also a number of other ‘non-tax’ factors. For example, a Self-employed person’s business affairs and personal assets are not separate. Therefore, a Limited Company will protect your personal assets from unpaid Trade Creditors, Inland Revenue and Customs & Excise should the business have a claim against it. Protection may also be derived against other commercial risks. Any protection is reduced to the extent that any personal guarantees are given. Where there is bank borrowing, the Bank often ask for personal guarantees where a Limited company is involved. In any event, these ‘non-tax’ factors are also an important incentive to incorporate.


Extra administration Costs

Naturally there will be an increased cost for your annual accounts preparation to cover the more complex needs that a company has, however it is likely that your tax savings will be greater than the additional accountancy costs which would still make incorporation favourable. You can contact me and we can discuss what you can expect to pay.

If you feel that incorporation into a limited company is the way for you, then be sure to contact me so we can discuss if this is the right direction for you, and how we can go about it.