The question most often asked of us by your fellow traders is understandably how to reduce their tax liabilities.
Therefore, we have developed a hybrid business structure especially for traders which offers both relative simplicity in its use with a high degree of tax saving potential.
The basic hybrid structure gives you a huge amount of flexibility for you to draw your money in a variety of ways including:
- Profit share
- Drawdown on capital
Due to the options available, you are able to choose the proportion of your money taken under each guise and then combine this with other investment options and tax planning strategies to reduce the tax payable on your profits to a legal minimum.
In a sole trader structure (which we have found to be the most common but also the least attractive tax-wise), you are currently taxed on the whole of your profits at a rate of up to 41% regardless of how much you draw of these profits.
For example, in the 2009/10 tax year, this would mean that a trader making profits of £100,000 per annum, but who only draws £50,000 from his business to live on, would face a tax bill of £33,669 if they were to use a sole trade business structure, but could reduce their tax bill to potentially as low as £19,597, a saving of £14,072 by using the hybrid Limited Liability Partnership and Limited Company structure.
The savings don’t stop there…..!
With effect from April 2010, Income Tax rates will rise to 50% for those individuals with profits/earnings above £150,000 with a further restriction to the Personal Allowance for those with profits/earnings above £100,000 - actually reducing it to nil for those with earnings in excess of c£113,000.
For example, a trader using a sole trader structure earning £200,000 per annum, these legislative changes will increase their tax liability by over £6,000, whilst those making up to £150,000 per annum will suffer approximately an additional £1,275 on top of the sole trader liabilities shown above. Both of these increases could be easily avoided by changing your business structure!
Even if you are not expecting this level of profits, the hybrid structure will also help you to potentially save tax with the potential tax savings available to a self-employed trader making £50,000 profits each year still amounting to nearly £4,000 per annum.
Obviously, saving tax is one thing, but keeping the structure easy to run is another. To find out more about the packages that we offer to traders, please click here.
Therefore, now that you have read the above, why not contact our trader accountant specialists to see how easy it could be for you to make the tax savings available to you!