Members In practice/Limited Company

[SarahDries]

Hi,<BR>I wonder if anybody can help. My husband runs a Limited Company - in Engineering Consultancy of which I am employed as a bookkeeper (and Secretary as well as being a shareholder). <BR><BR>I am wanting to set myself up doing bookkeeping/accounts but am not sure whether I can set up as part of his company or if I need to set up as a sole trader. Would it make any difference if I was a partner?<BR><BR>If anyone has any advice for me it would be much appreciated.

[peugeot]

It is very uncommon (in fact I have never heard of) running a Limited Company such as Engineering Consultancy parallel to bookkeeping/accountancy as the same business. The Directors Report in the Limited Company would currently cite the principal activity of the business as being that of Engineering Consultancy. If the principal activity was to be Engineering Consultancy and Bookkeeping this may be misleading as the two types of business are completely different. It would therefore be inadvisable to run your bookkeeping/accountancy business as part of another completely separate entity.<BR><BR>If you decided that you wanted to operate as a bookkeeper/accountant on a self-employed basis then you have to consider whether you would want to be self-employed (i.e. a sole trader) or in partnership (whereby any profits or losses that the company generates is split between the individual partners) or a Limited Company. <BR><BR>Tax implications on sole traders and partnerships are very much different that those of Limited Companies. Partnerships/STs are taxed on the profits that the business makes. Net profit is adjusted to arrived at taxable profits by disallowing expenses such as depreciation and instead giving capital allowances. The taxable profit is then put through the tax bands as normal i.e. 1st £1960 at 10% then the next lot up to £30,900 (I think!) at 22% then the balance at 40%. This also applies if you were to be a partnership though the taxable profits would be split in the ratio of the partnership (usually 50/50).<BR><BR>If you operated as a Limited Company then the company would be subject to corporation tax on its profits. Currently the corporation tax rate for small companies is 19%. The first £10,000 of taxable profits on a limited company is taxed at 0%. As you can see the tax advantages of limited company status are far better than those of sole traders/partnerships.<BR><BR>As a Director of the Limited Company you would take a salary (directors remuneration) which would be subject to the normal tax/nic deductions. If you were to take dividends out of the company (subject to sufficient profits being available to meet the dividends) then these would be taxed at 10% and a tax credit then given (so in effect the revenue tax it and then give it back!) Dividends are therefore a far more tax efficient way of extracting profits from a business. However, the Chancellor got wind of this and then decided that if the company yields taxable profits of less than £10,000 (therefore being taxed at 0%) but a dividend was given to the shareholders - then the dividend would not be taxed at 10% and a credit given it will be taxed at 19%.<BR><BR>Basically, as an overview, many sole traders/partnerships are now incorporating into Ltd co status to take advantage of the reduced tax regimes. It would therefore be better for you to consider your legal status (sole trader, partnership or ltd co) and then run the business as a separate business not as part of your husbands engineering consultancy firm. <BR><BR>Your Accountant should be able to advise in a lot more detail as to the formalities of each of the above but let me know if you have any more queries.<BR><BR>Steve.<BR><BR>