Sole trader -v- Limited company. Tax advantages?

[catt]

Are any of you UK residents who have trading profits outside the usual tax shelters of SB, SIPPS, ISAs and are subject to tax, whether income tax or CGT?

Has anyone made the decision to trade out of a limited company for tax reasons? Are there still advantages to doing so post 2006 Finance Act?

I have read the older posts and also the Traderpedia UK tax information which is unfortunately no longer current.

 

[lurkerlurker]

Limited companies used to have a tax advantage as the nil rate band for a Ltd was greater than the personal allowance. I'm fairly sure this no longer applies.

Not too sure about UK Limited Companies, but the following may be something to consider.

Incorporate an offshore limited in a tax friendly jurisdiction. It should be exempt from UK corporation tax. Trade with it. Pay yourself a salary or dividends, but retain and reinvest the vast bulk of the profits. As the assets of the firm grow, you can pay yourself a nice salary and some dividends, but keep the real monies offshore. If you decide to retire abroad, or ever become non-domiciled for tax purposes you can pay a dividend of the full balance of the firms trading account free of UK tax. This should work in theory, but as always consult a professional. My understanding is that you only pay UK tax on funds you take out of the offshore firm, either as salary or dividends. You shouldn't be taxed on the assets of the firm.

Another advantage of being a limited company is that its nil rate band is separate from your own. This means you could theoretically use your limited company for your main trading, and it gets taxed, but your CGT allowance remains untouched which means you can trade some shares or futures for your own account during the day or in the evenings and take advantage of another £8k or so (CGT nil rate band) tax free. Shares and futures profits should fall under CGT.

Again, I'm not terribly sure about the finer points. Perhaps full time traders here could recommend a good accountancy firm. Perhaps make enquiries of a decent private client asset management law firm instead?

 

[fxwinner22]

sorry, but anyone doing this is hardly likely to expose the ways to do it on here in a public forum! even though such practices are not illegal one does not put ones head above the radar.

 

[lurkerlurker]

sorry, but anyone doing this is hardly likely to expose the ways to do it on here in a public forum! even though such practices are not illegal one does not put ones head above the radar.

I would hesitate to bring politics into this discussion, but I think this ought to be said.

Have we really become so downtrodden that we no longer freely share information due to fear of government recriminations? There is nothing wrong with sharing information on how to legally reduce your tax burden. There appears to be a very nice industry in advising people how to reduce their tax burden, and said industry has high hourly charge out rates. Is it okay to charge for such professional advice, but somehow wrong for a private citizen to share the same information? Should those of us who are successfully and legally avoiding a heavier raid on our coffers hoard the information which allows us to do this?

Why should we not all try and help each other by sharing information? Isn't that an advantage of having freedom of speech? There is no duty to pay more than you owe to the government. In fact, one could argue that it is unpatriotic to support governmental inefficiency by paying an excess of tax.

My suggestion to trade for your own offshore firm isn't such a bad one, and if my suggestions can help people legally avoid paying too much tax then why shouldn't I share it?

Putting your head above the parapet takes courage – but it is only when you are above the parapet that you can fire back.

 

[chump]

Seriously,
this is not a topic for laymen. Anyone seriously interested in mediating their tax liability from trading should without question consult a tax specialist.
The potential for future liability is so great if you get it wrong it really makes no sense to hypothesise on BB's.
Recent ripples from the tax ...EU directive 2006 , IRS case v Barclays Plc , U turns on trusts etc etc ......
The fact is, there is such pressure now on the IRS to raise revenues one wonders if any schemes now in operation are going to be legal in the future.
Personally , I am now of the view that severing ties with the UK is the only option which might not be overturned.

 

[RichieE]

Hi all,

Answers to this thread would be useful for me since I have just started trading for a prop firm. I have joined as an individual but I am considering joining as a limited company instead to offset expenses.

Can anyone who knows or trades from an arcade please post some LEGITIMATE ways to be TAX-EFFECIENT with my hard earned ticks?

 

[red army]

Hi all,

Answers to this thread would be useful for me since I have just started trading for a prop firm. I have joined as an individual but I am considering joining as a limited company instead to offset expenses.

Can anyone who knows or trades from an arcade please post some LEGITIMATE ways to be TAX-EFFECIENT with my hard earned ticks?

out of curiosity, did you get any response to your question?? I've got a ltd comp and want to make sure i'm running it efficiently...
cheers