Lite Tax are Xero Gold Partners
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.
He is just one client that we have helped at Lite Tax. We are going to explore his background and how we help him achieve over £67,000 of savings.
The Background...
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…
This is the type of client we love to see, there are a number of things that we did for Stephen :-
1) Form a Limited company
This restrict the tax on what he earns to 19% and planning needs to be undertaken through tax planning.
3) Employ Wife
Employ his wife through the Ltd Co and his two Children. Pay Mrs Stephen up to the tax limit as NI is calculable on individual earnings.
2) Family
Pay the children up to the NI limit as this is cost effective.
4) 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).
5) Claim back proportion of rent
Claim back a proportion of the rent, as more can be claimed as a Limited company.
7) 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
6) 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.)
8) 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.
9) 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.
11) 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.
10) 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.
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.
Meet the Management Team at Lite Tax ...
Paul Light
Managing Director
Roza Light
Director
Osman Badat
Operations Director