Since April 2002 the owners of small businesses have been able to make significant reductions to their tax bills by operating their business as a limited company.
We have encouraged most of our clients, over the last two years or so, to take advantage of these savings. Many clients are now literally thousands of pounds better off from following our advice.
Whilst the advantages have, from April 2004, been reduced, it is still possible to save a lot of money.
Limited companies are run by its directors (who are paid by a salary) and are owned by its shareholders (who are paid by dividends). In small companies the directors and the shareholders are the same people. The savings are achieved by paying the directors a low salary with the rest of the profits being paid to the shareholders as dividends.
For example, a self-employed trader making an annual net profit of £20,000 would save tax and national insurance of £ 1139 each year if they were to operate their business as a limited company.
People operating their business as a sole trader will pay tax and national insurance at 28% on any of their income over £5,435. As a limited company, however, they will pay tax at no more than 21% on the same income.
It seems too good to be true.
There is, however, nothing particularly magical about this nor are you doing anything illegal. All you are doing is using the existing rules to you own benefit. It is, we believe, hard enough to operate a small business, without giving the taxman more money than you need to.
OPERATING A BUSINESS AS A LIMITED COMPANY STILL SAVES MONEY.
Everyone's circumstances are, however, different and we recommend that anyone considering operating as a limited company seek advice specific to their own particular situation.We have an information pack showing more details, which is available free of charge, on request. Contact Stephen Kendrew or Tracey Nixon at SHK for a free initial consultation to find out more details.