Self employed vs small business

[maybelateron]

1 hour ago, Mik the Miller said:

You can give away £3000 a year to anyone you choose in the 7 years before you die ... tax free

You can give away/gift any amount 7 years before your death ... tax free

This applies to you capital. You can also give money away without inheritance tax implications, as long as you can prove it came out of income rather than capital. For example, if one of you children needs their house roof replacing you can pay for this out of income, then die within 7 years but have no IHT implications.

[eggsarascal]

Crazy that people have to give their things away to avoid IHT, my mates parents gave their campsite to their daughter to avoid it, same money going to the same family, just a change of ownership on the paperwork,

[Gordon S]

5 hours ago, Clutchy said:

Any tree company IMO should be limited, for the liability side of things. Do not assume your house will not be taken, if you have signed any director guarantees which are sometimes hidden in lease agreements, they most certainly can take your personal assets 

 

If you're  a subbie its probably a lot less important/worthwhile. 

 

The advantages as limited if you're really raking it in could be: 

 

- Pay you and your wife £12,500 PA (no income tax, small bit of NI) and so long as there are 2 directors, you can offset 4k of employers NI 

 

- The rest pay as dividends after corp tax (although each year this advantage is being lessened). 

 

Very loosely speaking: 

 

Self employed on a 45k income you would take home £34,129 

 

Company with 2 directors would be closer to £39k take home after paying corp tax on the 21k left after wages 

 

Factor in an accountant at £500, you probably are better off limited, if you have a wife. 

 

If you are a sole director, its negligible. 

 

Please bare in mind ive roughly worked this out on site, so could be off a bit 

Correct me if I am wrong but I think there is more involved than just paying your wife £12,500 per year.

I was told years ago to set up a Limited Company by an accountant and work it as per your example. More recently the same accountant had clients pulled in by HMRC to discuss what work exactly their wife did for the company. There were looking for proof of 16-20 hours work per week from the spouse. He was now advising much more caution with Ltd Company set up.

Don't take this as gospel and as always use a reputable accountant for financial advise.

I hear loads of advice from mates/bloke down the pub with, I always claim for xxxxxx etc and i'v never had a problem, which is all fine until you have an audit. 

 

 

 

[Clutchy]

30 minutes ago, Gordon S said:

Correct me if I am wrong but I think there is more involved than just paying your wife £12,500 per year.

I was told years ago to set up a Limited Company by an accountant and work it as per your example. More recently the same accountant had clients pulled in by HMRC to discuss what work exactly their wife did for the company. There were looking for proof of 16-20 hours work per week from the spouse. He was now advising much more caution with Ltd Company set up.

Don't take this as gospel and as always use a reputable accountant for financial advise.

I hear loads of advice from mates/bloke down the pub with, I always claim for xxxxxx etc and i'v never had a problem, which is all fine until you have an audit. 

 

 

 

This is a good point. 

 

Fortunately I'm neither married nor could deal with working with my partner, fake or otherwise. We would go mad. 

 

I suspect it would be fairly easy to 'show' the hours if questioned however 

Edited April 27, 2023 by Clutchy

[treevolution]

It also only works if your partner doesn't work or their salary is under £50000.

 

 

[dan blocker]

5 hours ago, Mik the Miller said:

 

Yes, best not to die with more than £325,000.00 in assets and cash.

You can give away £3000 a year to anyone you choose in the 7 years before you die ... tax free

You can give away/gift any amount 7 years before your death ... tax free

 

Keep records...

I am not a tax lawyer but have recently suffered from parents death.

Pretty sure if assets include a residence left to direct descendants such as kids and or grandkids the IHT threshold could be £1 mil. Consisting of £325,000 basic inheritance tax allowance and £175,000 residence nil rate band x 2, If husband leaves everything to spouse and spouse dies leaving it all to direct descendants or Vicky verky🤔. As I navigate my way through life’s up and downs I don’t think my kids will have to find any inheritance tax to pay😂

 

Edited April 27, 2023 by dan blocker
Double quote

[Clutchy]

53 minutes ago, treevolution said:

It also only works if your partner doesn't work or their salary is under £50000.

 

 

 

Also true. If you were not married, I think it would look more like this 

Self Employed on £45k = £35,148 take home 

Limited company takes in £45,000 

Pays out:
£12,500 wages 
£469.20 Employers national insurance (No relief can be claimed if sole director)

Profit = £32,030.80 

Corporation tax - £6,085 

Maximum possible dividend = £25,945.80

 

Personal tax from the above: 
Dividend + Salary - tax = £36,278.23 take home as limited  vs £35,148 self employed 

Maybe???

[swinny]

Clutchy don't forget your free dividend is dwindling.... was 2k.... this year only 1k next year 500 I think

[Clutchy]

11 minutes ago, swinny said:

Clutchy don't forget your free dividend is dwindling.... was 2k.... this year only 1k next year 500 I think

Yeah I know, I think they are trying to level the playing fields after the furlough scheme 

 

Even at 0 its still slightly better than self employed but the advantage is only £50ish a month 

 

Probably not worth it once you factor in an accountant vs self assessment only

Edited April 27, 2023 by Clutchy

[Barney]

3 hours ago, eggsarascal said:

Crazy that people have to give their things away to avoid IHT, my mates parents gave their campsite to their daughter to avoid it, same money going to the same family, just a change of ownership on the paperwork,

Not all people... The King is exempt so didn't pay IHT on the estates he inherited 😠