Best business structure for a self-employed affiliate ?

**Pidea** · 28-01-11

Hello all, I'm a self employed (registered with HMRC as such) affiliate and have been for the last 18 months or so since being made redundant.

Things are quite well really but I have a problem in that my earnings are quite high compared to my costs.

I've got about a dozen sites promoting eBay as well a handful of subscription sites that I run. The trouble is that the running costs of these are very low: basically just web hosting and domain registrations etc.

As a result the apparent profit they make is quite large and so I'm probably paying more tax than I need to :-(

I put a lot of things through my 'business' already as expenses: e.g. mobile phone bill, any travel, proportion of mortgage etc but my costs are still only around 1/5 of my earnings.

Would setting up a limited company make more sense as it appears you only pay tax on what you take out of the business rather than everything that you earn ?

Or should I stay as I am and bite the bullet ? Can I somehow offset the development time for new sites so they are immediately profitable ?

Any advice would be greatfully received !

Cheers

**PeterRudinBurgess** · 18-02-11

There is no advantage for you in going down the limited liability route. You are right in that you will only pay tax on your drawings, but the business will have its own tax liability. You will also have to prepare and file business accounts at companies house. The additional expense of the businesses tax affairs such as paying for an accountant and corporation tax would offset any gains.

**ian** · 18-02-11

There are advantages to going Ltd in terms of tax planning. Instead of paying 9% NI and 20% income tax on profits up to £37k and 40%+ after that your company pays corporation tax at 20%. Once the 20% corp tax has been paid, you get your money from the company via Share Dividends which are not taxed up to the 40% threshold. When the dividend income goes above the 40% tax threshold, you pay the extra 20%.

These are approximate figures and you should really speak to an accountant who can give you proper advice based on your own circumstances. Due to the extra costs associated with a ltd company, and the hassle involved I think the tipping point is around £60k.

There are legal alternatives to using Ltd company share dividends for tax planning. With very low risks, you could be walking away with just 15% tax liability while still paying NI and income tax, but you have to be in the "circle of trust" to get that info

**PeterRudinBurgess** · 18-02-11

Ok, yes if the earnings are over £60k then there are advantages, but 99.99% of affiliate sites do not hit that level of earnings.

**hrbs** · 18-02-11

Originally Posted by PeterRudinBurgess

Ok, yes if the earnings are over £60k then there are advantages, but 99.99% of affiliate sites do not hit that level of earnings.

The tipping point is much, much lower than £60K profit.
Depending upon how much your accountant fees are, you could be better off even if your profits are £25k, due mainly to the class 4 NIC which is charged on self-employed profits.

The tipping point will also depend upon whether you are reducing your taxable income by making pension contributions.

My spreadsheet at http://hrbs.biz/id?313 illustrates the potential savings.

For those who have a full-time job as well as their affiliate income, they may start paying higher rate tax on relatively low levels of self employed profit as it is added on to their other income.

There are other non-tax related areas which would need to be considered when deciding whether or not to go limited.

Student loan repayments are calculated based on all income including self employed profits, so using a limited company can help you plan your personal income and pay the loan back over a longer period than if you were self employed.

Regards

Keith

**Norras** · 18-02-11

Originally Posted by PeterRudinBurgess

There is no advantage for you in going down the limited liability route. You are right in that you will only pay tax on your drawings, but the business will have its own tax liability. You will also have to prepare and file business accounts at companies house. The additional expense of the businesses tax affairs such as paying for an accountant and corporation tax would offset any gains.

I'm glad you're not my accountant

**PeterRudinBurgess** · 19-02-11

hrbs is obviously a professional financial accountant and I do not dispute or disagree with him, but if as a sole trader I would recommend paying into a personal pension and those contributions would extend your lower tax bracket. In other words all the figures are elastic. I am sure that if you went to hrbs as a sole trader he could reduce your tax liability from the headline figure quite easily.

I am not a tax accountant I am a MIS accountant which is a very different thing. Anyone considering this really should take professional advice before committing.