case study

A chance to Save Some Tax 👷

Stephen is a 53 year old builder. He is a sole trader and has been successful over a number of years.

Current Takings

He currently makes about £100,000 per year, although he needs £50,000 to survive.

Family

He has two sons 16 and 18 both in full time education. They answer the phone for him from time to time and help with general admin such as invoicing and pricing contracts.

Spouse

Steven’s wife works part time and earns about £7,000 per year, but also does a bit in the business.

New Opportunity

He has an opportunity to buy a yard for his business which will cost him £150,000.

What to Do?

Stephen has about £50k left in cash which he could invest in the yard, he is sure he could borrow through a mortgage for the rest.

Other Income

He also makes £18,000 profit on the rental of 3 buy to let properties.

Home

His own house has 6 rooms (apart from the kitchen and bathroom), he uses 2 for storage and an office and his mortgage interest and other household costs are £12,000.

Life Assurance

He has life assurance with a premium of £100 per month that he pays himself

Stephens latest tax bill was £34,600 plus a payment on account of a further £17,300 in January and a further £17,300 in July and he asked us how to reduce his tax bill…

results

This is the type of client we love to see 😍
there are a number of things that we did for Stephen :-

Form a Limited Company

This restrict the tax on what he earns to 19% and planning needs to be undertaken through tax planning.

Family

Pay the children up to the NI limit as this is cost effective.

Employ Wife

Employ his wife through the Ltd company and his two children. Pay Mrs Stephen up to the tax limit as NI is calculable on individual earnings.

Shares

We also suggested issuing shares to wife and kids to keep the dividend in the lower tax bracket (not needed in this case but maybe keep to next year).

Claim back portion of the rent

Claim back a proportion of the rent, as more can be claimed as a Limited company.

Splitting Income

Put the income in properties in joint names, with his wife (keeping Stephen out of higher rate tax and allowing him not to fall foul of R24 interest restrictions.)

Payment on Account

Claim back or don’t pay as much Payment on account. There is a 21 month delay before companies pay tax when they start.

Payments on Yard

The payments he used to make on his yard were still allowable in the company for corporation tax relief. The receipt in the SSAS was held in a tax free pension fund, as was any growth in the value of the land.

Life Assurance

Rebroke the life assurance policy to relative life, which means the instalment is tax allowable for the company. One insurance company will do this for Critical illness.

Small Self Administered Scheme

Use the £50k cash he has left over plus savings on tax to buy the yard through a SSAS. Stephen loaned the company £50k through his Directors Loan Account to do this, which he can withdraw at any time tax free. This £50k can be used in future years to prevent him going into the higher dividend tax withdrawal bracket.

Office Rent

Claim the proportion of the rent on his home as an office by renting this from time to time to the company. This allows a company owner to charge a proportion of his costs rather than the £6 per week allowed by HMRC as a sole trader.

By doing this, Lite Tax Ltd were able to save Stephen over £67k in terms of tax savings and cashflow and future losses to carry forward.

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