Question:
I am trying to determine whether to become a sole trader, or create a limited new build development company, or just start off with a self-build at first and then form a company for the rest. What tax is due if I set up as a sole trader or as a limited company? Which is better tax-wise? I may be able to avoid some tax by self-building at first and then converting into a company builder as I develop more houses. What is your advice please?
Arthur Weller replies:
In the long term, assuming the profits can be extracted by way of dividend (except for a small annual salary of £7,696 (2013-14)), a company is more tax efficient because National Insurance contributions are avoided. However, sole traders can claim generous reliefs for trading losses in a new business, so some people advocate starting off as a sole trader and then later converting to a limited company.
