TAX TIP OF THE WEEK - Are you operating as a sole trader?

Are you operating as a sole trader? Find out how you could get extra tax savings when incorporating your business.

Most likely your sole trader business will have some value in the way of goodwill. This value can in effect be sold to your new ltd company providing some valuable tax breaks 💰 .

For example, if you were able to demonstrate that the goodwill value was £100k then this would be owed to you by the new company by way of a directors loan account. 🏦

This could allow you to draw money from the company and avoid higher rate personal taxes until the loan is used up.

One thing to bear in mind though is that a CGT bill would be triggered for you personally, which although would be lower than the eventual tax savings the downside it would be payable in year 1.

However, an alternative would be to use either incorporation or holdover relief, which in effect would allow you to defer the gains indefinitely.

The best result would be achieved by using part of the relief so that you can benefit from the director’s loan account credit with only a little or no CGT payable.

I hope this was helpful, for lots more tax tips and strategies get a copy of our 71 ways to save tax checklist.