Yeah! How do you choose an accountant? Come on you lot out there tell me. Very few of you seem to make reasoned sensible decisions. For example, I had a meeting with a potential new client recently which went something like this.
“I’ve seen one or two other Cambridge accountants and they don’t think it’s worthwhile me trading through a limited company. I’ve recently taken voluntary redundancy from a £100,000 a year job so my plan is to live off the income from my business and not spend my savings. I took voluntary redundancy because I have this great business idea which I expect to bring in much more income than my previous job”.
I told him straight that the other accountants had clearly not given a thought to his personal circumstances when giving him their advice. It was obvious that he should form a limited company for his new business, not take any income from it for the rest of the financial year at least and use his savings to fund his living expenses.
Why did I tell him this? Well, because it is the most tax efficient solution in his circumstances, and this is why: -
- He is already a higher rate taxpayer so any additional income he received would be taxed at 40%.
- Leaving the new businesses income in the company would ensure that it would only be taxed at 21%.
- By living off his savings and not receiving any income for the rest of the tax year he would get a tax rebate.
On a conservative estimate of £25000 profit for the remainder of the financial year my advice would save him over £6000 in tax and national insurance.
Not only this, I also pointed out that if the business did not prove to be as successful as he hoped and he decided to wind it up we could take advantage of another ploy and get up to £10,000 of any profit from the company tax free.
Can your accountant help you like this?