SELF EMPLOYED V LTD CO.

TODAY’S BLOG

SELF EMPLOYED v LTD COMPANY

Those of you that run a small business or provide a professional service are typically either self-employed or operate a small Limited company. The main legal advantage of a Limited company is that any liability is limited to the company and the Director cannot be harassed for funds owed to creditors should the business fail. The company is a legal entity in it own right.

The Chancellor’s plan to increase the main corporation tax rate from 19% to 25% in April 2023 has once again brought into focus the question of whether it makes sense to incorporate your business if you are currently self-employed. Although tax alone should not be the determinant, it can be a major factor in many instances.

CRUNCHING THE NUMBERS

The first point to note is that the 25% rate will generally only apply for companies with profits of at least £250,000. Up to £50,000 of profits, the current corporation tax rate of 19% will continue, albeit labelled a small companies’ rate. In between those limits, the tax rate will be 19% on the first £50,000 of profits and 26.5% on the excess. This can mean that if you incorporate when your profits are modest, you may regret the move if your business starts to make more money.

How you draw income from your company will determine your overall tax bill. In the examples below, we have assumed:

  •  All of the profits will be drawn. This makes the picture consistent with the self-employed alternative under which all profits are taxed.
  • You draw a salary of £8,840 a year from your company. At this level neither you nor your company will have any National Insurance Contributions (NICs) to pay.
  • All your profit, after deducting your salary, is taxed at corporation tax rates and then paid to you as a dividend.
  • The first £2,000 of your dividend is free of tax thanks to the dividend allowance, but still counts as part of your total income for tax purposes.

SELF EMPLOYED LTD CO 2021 LTD CO 2023
Gross Profit £75,000 £75,000 £75,000
less salary <£8,840> <£8,840>
Taxable profit £75,000 £66,160 £66,160
less corporation tax <£12,570> <£13,782>
net profit = dividends £53,590 £52,378
less National Insurance <£4,316>
less Income Tax <£17,432> <£6,629> <£6,235>
Net Income £53,252 £55,801 £52,378
Gain/loss if incorporated +£2,549 +£1,731

COPORATION TAX RATES

So, let’s consider the same scenario, but with larger numbers, double at revenue of £150,000…

SELF EMPLOYED LTD COMPANY 2021 LTD COMPANY 2023
£ £ £
Gross Profit £150,000 £150,000 £150,000
Less Salary £8,840 £8,840
Taxable Profit £150,000 £141,160 £141,160
Less Corporation Tax <£26,820> <£33,657>
Net Profit – dividends £114,340 £107,503
Less National Insurance <£5,816>
Less Income Tax <£52,460> <£30,616> <£27,362>
Net Income £91,724 £92,564 £88,981
Gain/loss from incorporation +£840 -£2,743

The higher profit level highlights the impact of the corporation tax change: at £75,000 the corporation tax bill increases between 2021 and 2023 by 9.6%, but at £150,000 the bill jumps by 25.5%.

MORE IS MORE

If the corporation tax increase goes ahead – and there are voices suggesting it might be tweaked nearer the time – then on tax grounds the case for incorporation will be weakened, particularly at higher profit levels. However, as mentioned above, tax is not the only consideration.

ACTION

The numbers above are for two specific profit levels. Comparative calculations are complicated by the phasing out of the personal allowance, so there is no straight line between the £75,000 and £150,000 results.

The corporation tax move is another step on the slow path to rationalising the taxation of earnings between employees, the self-employed and owner directors. For a review of your personal situation and the tax saving opportunities available now, please talk to us.

For what its worth (nothing) if I were Chancellor, I’d have standard rates of tax irrespective of where the income is derived. This would make tax much more transparent, straight-forward and easier for everyone to understand. The problem lies in the will of Government.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

SELF EMPLOYED V LTD CO.2021-11-25T16:49:34+00:00

SORRY WE MISSED YOU

TODAY’S BLOG

SORRY WE MISSED YOU

The new Ken Loach movie “Sorry We Missed You” takes a scathing look at the life of the new gig-economy self-employed who are now a part of the service sector that we all use. Instantly you will sense that this is a political piece and you are probably right. Loach makes yet another bleak, grey but good little movie about the daily struggle to make ends meet. This story may jog your memory about snippets of information that you have picked up over the last couple of years. I can assure you that it will have an impact on your thinking for any online orders you make before Christmas.

Confession – I quite like Ken Loach. I have a great deal of empathy for what he seems to be trying to do. As far as I can gather, this is little more than calling to account a system that is simply not working for lots of very “ordinary people”. This movie is clear that some employers are abusive. I suspect you know this already to be true. Whilst one would argue that “workers rights” are largely the diet of the left-leaning, I haven’t met anyone that believes people should be treated as commodities, perhaps I don’t get out enough though.

Masters of the Universe

Ricky (Kris Hitchen) is fed up with being told what to do, a friend suggests he become a self-employed delivery driver. He can be his own boss. I may have misheard, but I think the deal is £150 a day for deliveries completed to satisfaction. The problem being that Ricky doesn’t have a van, he can rent one from his new sole customer (at £60 a day) or make his own arrangements. Ricky also has a tight schedule (set by others) which means he doesn’t have time for anything more than a 10-minute break in his 12-14 hour day. Worse still, he can only “not work” if he has arranged a driver to cover him or it’s a £100 fine and a “penalty”. The parcel tracking device is provided (it’s a requirement) but if lost must be paid for at £1,000. The parcels, once taken by the driver become a personal liability.

Return to sender

The benefits of self-employment quickly evaporate with a sense that in practice, Ricky is not in control of very much at all, yet has agreed to offer his services at guaranteed rates for guaranteed results. This is really the crux of the story and the resulting pressure. The employer has waived all responsibility and has rented labour at a lower cost than having proper employees.

Technology that liberates?

Amazon and other delivery drivers spring to mind. However Ricky’s wife Abbie (Debbie Honeywood) is a carer that is employed at arm’s length to care for (clean, bathe, feed) infirm people on set 30 minute slots (or less) and invariably this isn’t enough time to do the job properly or with any care, let alone get to the next “client” on time. As you may imagine, the fact that both husband and wife are running around working long hours attempting to keep to someone else’s schedule has a knock-on effect for their family and relationship.

I’m not a fan of “zero hours” contracts or the gig economy. I don’t like “internships” or unpaid labour with the hope/promise of better things. I think its abusive and I have little time for those that use it as their business model. That covers almost the entire media industry.

Sorry but I have a few questions…

I do have some questions for Loach. If Ricky earns £150 a day and is working 6 days a week. That’s £900 a week or £46,800 a year. Abbie also earns and so I wonder what is happening to their income. They missed out on buying a home in 2008 due to loss of his job, but quite what that was is unclear. However the inference is that the failure of Northern Rock and the credit crunch are partly to blame. There may well be some debt, but this is not explained. Teenage son Seb (Rhys Stone) goes from being “top of his class” to a truant, violent, petty thief – what happened there? When he and younger sister Lisa (Katie Proctor) state that they want things to return to “how they were” what does that mean? When?

Required: Thinking

To my mind Ricky and Abbie are taken advantage of. They may or may not be good with money and sums, frankly its impossible to say. They certainly care and seem like “decent people”. Even with the abusive employment, why don’t the drivers have rota for a shared replacement driver, so that they can actually take time off for important things? There is simply not enough to convince me that any of them really understand what “self-employment” is. Perhaps because everything about the work has the feel of employment without the reality.

The problem I have as a financial planner is that I suspect that some of the financial problems that Ricky and Abbie have could probably be easily addressed, but nobody has the time to stop to think, assuming they are able to do so. Perhaps “the job” could work for some but it certainly doesn’t for this family. I was moved by the story but left with questions about the how and why. Whilst Loach has a specific working-class focus, in practice the same stresses of post-modern life and inability to see the bigger picture can negatively impact any of us. Sadly, I suspect that this will be seen as little more than a critique of “big business” and “Government policy” yet the problems are far deeper than that, issues that need facing before any significant change can occur.

Anyway, here is the trailer. The movie is out now.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

SORRY WE MISSED YOU2019-11-11T14:16:19+00:00

A BRAVE NEW VENTURE

TODAY’S BLOG

A BRAVE NEW VENTURE

Few of us need too much of an excuse to visit the Cotswolds – a delightful part of England that takes in several counties.

James and Corinna have embarked upon the next stage of their careers by setting up a business that they know well. They recently took over a Burleigh Court Hotel, a country house set in the hills near Stroud. They have a real flair for entertaining and a big enthusiasm for life, so should make perfect hosts. What was once a hope verbalised in one of our meetings, has now become a reality… the hard work now begins to make it as success.

Burleigh Court Hotel is set in some wonderful scenery and is only 16 miles from Cheltenham and 30 miles from Stow-on-the-wold. So within easy access to explore the charms of Cotswold life.

I’m hoping to make a visit and that they will agree to being featured in our client magazine Spotlight. It will be interesting to see how they make their impression on the hotel. I would like to wish them every success and of course if you are planning a break in the Cotswolds why not consider staying with them.

Burleigh Court Hotel

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

A BRAVE NEW VENTURE2019-08-22T16:53:50+01:00

THE BESPOKE SMALL BUSINESS

THE BESPOKE SMALL BUSINESS

Richard Bullock set up Barn 6 Furniture in 1996 and has grown his business over the last 22 years. He specialises in high end furniture often working with designers and architects on a complete refit of a home, office or retail space. I went to visit him at his impressive new workshop in Letchworth.

There are many challenges running a small business, but to date Richard has steered his firm through some challenging times in a field where price, quality and craftsmanship are terms used glibly by most.

As we worked on Richard’s financial planning one of the things that occurred to me was the full meaning of bespoke. A wry smile stretched across his face as he explained that one of the largest challenges in his work is getting clients to think about what they want. “Invariably people come with ideas and want to look through a brochure to pick something that they would like, but there is no brochure, we have a portfolio of work of what we have done, but each piece is different”. The penny finally drops that the client can have what they want, in any material, subject of course of the reality of their budget. He loves working with the end client, helping them to achieve the results that they are looking for.

R Bullock Owner Barn 6 Solomons IFA interview - a Bespoke Business

Bespoke Marketing

This struggle resonated with me. How on earth do I tell others about our service? One that is about creating bespoke financial plans, as unique as the imagination of our clients, yet with many similarities and using tools that are far from unique. If you want a pension or an ISA, you can simply buy one from a selective list – much like you can buy a kitchen. For many this will be perfectly acceptable, living with the imperfections and irritations of an off-the-shelf solution. However, for the sort of people that we work with – who want something that reflects them and their own lifestyle with a very personal touch, the key ingredients are time and skill.

Master of the Craft

A new build lecture theatre for Worcester College, Oxford, that Richard was extensively involved in was shortlisted for the Stirling Prize 2018 and he also won a Wood Award 2018. He also created a huge moving table and light tower for a London architecture practice to display models of their buildings at the world-famous Venice Biennale for Architecture

Gone Sailing…

As a business owner that walks his talk, Richard also renovated a Sadler 32 from a near wreck, which he now sails on his own, giving him a much-needed change of scenery. He mainly sails on the east coast and sometimes races in the “Round the Island” race against 1600 other boats with the help of his brother and one of his two sons. When he eventually retires, he would love to do more sailing and have a bigger adventure. Hopefully, that’s something that we will help him achieve sooner rather than later.

If you would like anything bespoke for your office, home or business, perhaps Richard could help you. You can reach him at www.Barn6.co.uk or call 01582 467557.

Here is a short video we made about Barn 6.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Email me
THE BESPOKE SMALL BUSINESS2019-01-17T11:01:58+00:00
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