Latest Budget -Employers Class 1 National Insurance Secondary Threshold will be £5000

[wats-dide]

Hi All,

According to the new budget, Employers Class 1 National Insurance Secondary Threshold (ST) will be reduced to £5,000 per year (from £9100).

I am the only employee and also the director of my small ltd company. This means that the employer's NI contributions (15 % now) will reduce the salary that I get from my small business. I think it makes more sense for me to close my ltd company and work as a sole trader now. 

I cannot benefit from employment allowance since HMRC states that you cannot claim if your company has just one director and that director is the only employee liable for secondary Class 1 National Insurance.

Is anybody else in this situation ? What is the process of moving my Ebay account from ltd to sole trader ? 

Thank you for your time. 

[stormatic2015]

Unless you have another job, you would still need to pay some Class 2 NI if you are under £12,570 or Class 4 if over £12,570.  (still looking into this myself).

Otherwise you wont get any contribution to your state pension.

https://www.gov.uk/self-employed-national-insurance-rates

With Ltd, its Class 1 NI, but only after £758. which will be £416 next year.

You would then pay the 19% corp tax and then using the profits, pay the rest of your wages with dividends which is tax free upt to the £12,570 make and then 8.75% up to 50k. (This is what the advise I have been looking at say).

As I said I am still trying to figure this out myself, only started doing the math yesterday. Also bonus, that I only found out yesterday.  If you didnt know you are allowed to gift your employees £50 gif card vouchers. A director can have up to the cap which is £300. So 6 x £50 vouchers, distributed evenly through the year.
https://www.gov.uk/expenses-and-benefits-trivial-benefits

[myriad*seller]

I spoke with an accountant before the budget and he said that unless you earn over £50K (odd) (take home not gross) as a sole trader, it is better tax-wise to stay sole trader.

If your total net profit as a sole trader is over £50odd K it is better to be Ltd apparently

I am not an accountant, however. 

[4_bathrooms]

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@myriad*seller wrote:

If your total net profit as a sole trader is over £50odd K it is better to be Ltd apparently

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It's going to depend on a lot of factors. £50,271 is where the higher rate (40%) of income tax kicks in but corporation tax is 19% for profits up to £50,000, 25% (with marginal relief) for profits between £50,000 - £250,000 and 25% for profits over £250,000.

So it will depend on factors such as how the sole director employee gets paid; i.e. the salary they award themself, dividends, pension contributions etc. as well as how profitable the company is.

[4_bathrooms]

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@wats-dide wrote:

What is the process of moving my Ebay account from ltd to sole trader ? 

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As per eBay an account cannot change ownership. You will almost certainly need to open a new eBay account to continue selling as a sole trader.

[therenewalworkshopltd]

@wats-dide   You might also want to consider what the overall value of changing from Ltd to Sole trader is.

It probably is not as much as you think it is and is certainly something that you should discuss with an accountant first.  Or you may find yourself making major changes for very little extra.

[ojewellery]

I read it the same as you but it's really busy at present so haven't researched. I had a Channel X email earlier and I think we might be slightly better off....

https://channelx.world/2024/10/the-new-labour-governments-first-budget/

[stormatic2015]

Either way, giving dividens under 50k is still better than wages.

From what I can see Assuming you get 20k a year, obviously you cant guarentee this. So next year (after 1st year of trading) you pay wages at £416 per month and every 3 months pay yourself dividends at £1,893. Which will total the tax code, £12,570. Also give yourself £500 dividend which is tax free.

From what I have calculated, assuming 20k net profit. Larger the profit the bigger difference.

2024 - From wages would be, Income Tax £1,386, Employee NI @8% = £554.40, Employer NI @13% = £900.90

Total: £2,841

2025 - From wages would be, Income Tax £1,386, Employee NI @8% = £554.40, Employer NI @15% = £1,039.50

Total: £2,980 

From Dividends after £13,070 allowance, Corp Tax @19% = £1316.70,  Dividend @8.75% = £606.38

Total: £1,923

Assume solo directors also get the £5000 allowance if eligable, that would take away the £1,039.50 making dividends almost the same for 2025 total would be £1,940.50

Please correct me if my math is wrong.

[stormatic2015]

I have not taken into consideration of the pension credit, so unless it changes you need to pay atleast £544 p/m to qualify for LEL.

Which would mean even on dividends you do pay  (emplorer and employee NI) of £321.08. making the new total on the figures above. £2,224.08 making you only £756 better off. Again unless the 5k allowance is allowable for sole director.