|Legal: You are the business, you are the owner and considered self employed. You cannot be your own employee. You are personally responsible for any debt.||The business is a separate legal entity, you are a shareholder and hold all or a proportion of the chare capital. The debt is limited to the company and not you personally. You are a director/secretary to the company and also an employee paying National Insurance and income tax on you salary.|
| Set up: Just inform HMRC that you are trading within 3 months of starting up.||Dead easy to set up a company with companies house, they issue a certificate of incorporation by email, pop it over to your bank business manager and hey presto your business bank account and you are ready to trade.|
|Tax: You pay 3 types of tax|
Class 2 NI (£2.88/wk)
Class 4 NI
You can employ people and pay a salary.
Eg Spouse if it is it commercially justifiable.
You have to make 2 tax payments every year.
One at 31st Jan and second at 31st July, this includes an upfront payment of half the estimated tax bill next year.
|The Company has to pay corporation tax* 20% on profits ( after all running costs are taken out)If the rest of the money is left in the company then no further tax need has to be paid, however further tax is incurred when money is withdrawn:|
-When you withdraw a salary
-When you withdraw money as dividens A lot of small businesses owners will pay themselves (and possibly their spouse) a minimum salary around £10K (so as not to have to pay income tax or national inurance) and withdraw the rest as dividens.
However it still build up your NIC record, allowing for future benefits such as state pension.
Dividens tax is lower than income tax and there is a saving to be had, this is enhanced if your spouse also has shares in the company.
* At present the tax saving by using a limited company was significant especially when a spouse has shares. However George Osborne is targeting small companies and the 2016 budget will greatly diminish tax savings.
Tip : Take out your dividends before the new tax year.
|Borrowing: You can take out money from your account as you like.||When you take money out it is usually divided in ratio of the allocated shares, however if you need to borrow money then you will pay a tax charge of 25% if you do not repay the loan within nine months of the year end.|
|Pension: You can pay into the NHS pension.||You cannot be enrolled into the nhs pension but you can have a private pension, any contibutions your company make is a tax saving.|
|Accounts: You do not need to submit accounts to the HMRC, you have to fill in a self assessment which you can do yourself or ask an accountant. Accountant fees are much less around £300-£400/year. These fees are a business expense for both sole trader and Ltd co.||Accounts HMRC require full accounts for Corporation Tax which must be submitted using its own or specialist software. Accountant cost are much higher due to the increase in statutory liability and fines.|
Please be aware that accountants have a slightly vested interest in you working as a limited company, as they can charge you more.
|Expenses: You obtain tax relief for expenses that are incurred wholly and exclusively for the purposes of the trade.|
Cars and fuel
Your home is your base and so every day when you travel to work or go on home visits, this is a cost that you can put as an expense. A useful way of doing this is to add total cost of running a car fuel, breakdown cover, insurance, MOT etc claim the proportion of the car used for business eg 50% Your spouse if working for you can also claim.
|You obtain tax relief for expenses that are incurred wholly and exclusively for the purposes of the trade however you are more limited to the amounts and types of expenses that you can claim|
Car expenses for travels
£0.45/mile for the first 10,000 miles
£0.25/mile for the remainder
|Mobile phone and broadband: Mobile phones and telephone|
If you use your mobile 50% of the time for business then you can claim it back.
|Mobile phones and telephone Rules around phones and internet is a little more regulated.If your mobile phone and internet is used largely for work with occasional personal use then the accounts can be in the company name and you can deduct as an expense. However the more likely case is that they you have a personal phone mobile +/- landline and broadband and would like to claim some business expense.|
You can claim the cost of calls made from your personal phone however you cannot claim the rental cost of the phone as the HMRC will argue that you need to pay this anyway for your personal use.
You cannot reclaim broadband, unless you specifically had it installed for home working, as the broadband would be there anyway and there is no extra cost incurred for using it for business use on top of regular work.
EIM3294- Mobile phone charges
EIM32940- Telephone charges, why you can’t reclaim rental
EIM01475- Broadband, reclaiming cost of home broadband
|Computers: You can obtain capital allowances on a computer for the portion of business use.||Computers Providing you need to use one to perform your role your company can provide a computer without any tax consequences.|
|Working from home: There are a wide range of expenses you can claim, a proportion of any cost in running the house can be potentially claimed back:|
You cannot charge yourself rent but will be able to claim a deduction for mortgage interest, rates and light, rent, council tax, water, gas, electricity, home insurance, repairs, cleaning costs, heat, if you have an office at home.
You cannot claim the capital element of the mortgage.
If you are hardly at home or not using your home much then you can claim £4/week without needing to show receipts. Most locums do need a home office base and it is better to claim a proportion of your home expenses. Eg if you have 4 rooms and use one as an office for 50% of the time then you can claim 50% of ¼ of the cost of running the house.
Tip: do not use the room exclusively for work so as not to incur capital gains tax when you sell your house
|You are a bit more limited which expenses you can claim,|
You can claim £4 per week without receipts for home expenses.
Alternatively, the company can reimburse you for light and heat, but not mortgage interest or council tax.
|Charging rent for use of home: A sole trader cannot charge himself rent.||A director you may set up a licence between you and your company to rent an office (or other space) in your home or outbuildings. This will enable you to recharge a proportion of mortgage interest and council tax.|
You will need to declare this as income and prepare rental accounts as for Self Assessment tax purposes.
|Subscriptions/Membership: You can claim cost of any professional membership and journals as an expense.||You can claim cost of any professional membership and journals.|
See HMRC list of allowable groups.
|Accomodation whilst locuming far from home: You can claim the cost of subsistence away from home as long as your contract is not lasting more than 24 months and the expenses are reasonable, a 5* hotel stay might challenged by the HMRC|
|Food and Leisure: There is some scope for claiming food eg lunch if you are working in a place that is not a part of your usual pattern of work ( as locums do frequently), speak with your accountant for more info.|| You can claim the cost of an annual company event eg for you and your partner (if they are an employee) up to £150/head.|
There is some scope for claiming food eg lunch if you are working in a place that is not a part of your usual pattern of work ( as locums do frequently), speak with your accountant for more info.
|Training: If the training is in relation to your current role then you can claim it eg a refresher course, if it is to perform in another role eg Management degree then it may not be allowable.|
|Equipment: Equipment used wholy and exlusively for work eg stethoscope is claimable as an expense. Clothes eg suits are not classified as wholy and exclusive.|
|Your health: You can claim for an annual eye test as you use computers and this comes under health and safety legislation. Gym membership cannot be claimed.|