Professional racing car drivers in the UK can utilise limited company structures to manage their winnings and sponsorship income efficiently.
By establishing a limited company, drivers can benefit from various tax advantages and have greater control over the distribution of their income.
This article will outline the process of setting up a limited company and discuss the tax benefits associated with it. Additionally, it will explore how income can be distributed to the driver effectively.
Setting up a Limited Company:
Choose a Company Name:
Select a suitable name for the limited company, ensuring it adheres to the guidelines set by Companies House, the UK’s registrar of companies.
Register the company with Companies House by completing the necessary paperwork, including providing details of the company’s directors and shareholders.
Memorandum and Articles of Association:
Prepare the memorandum and articles of association, which outline the company’s structure, purpose, and rules.
Shareholders and Directors:
Determine the share structure and appoint directors and shareholders. Racing car drivers often become the directors and shareholders of their limited companies.
Provide the registered office address for the limited company. This address will be used for official correspondence with Companies House and HM Revenue and Customs (HMRC).
Open a Bank Account:
Establish a business bank account for the limited company, ensuring proper separation between personal and company finances.
Limited companies are subject to corporation tax on their profits, which is currently set at 19% in the UK for profits under £250,000. Above £250,000 corporation tax is set at 25%. By operating as a limited company, racing car drivers can benefit from potentially lower tax rates compared to personal income tax rates.
Tax Deductible Expenses:
The limited company structure allows drivers to claim tax deductions on various business-related expenses, such as vehicle maintenance, travel costs, race entry fees, and marketing expenses.
Example: The Crown and Cushion Hotel sponsored a racing driver, and the First-tier Tribunal allowed tax deductions for the expenditure incurred, considering it “wholly and exclusively” for the hotel’s trade purposes.
Limited companies can claim capital allowances on the purchase of equipment, such as race cars, safety gear, and tools, reducing their taxable profits.
Limited companies provide flexibility in distributing income to shareholders, allowing racing car drivers to optimize their tax position. Dividends can be paid to shareholders, including the driver, which may attract lower tax rates compared to personal income tax rates.
Note: It is essential to comply with tax legislation and seek professional advice to ensure proper income distribution and tax planning.
Income Distribution to the Driver:
The racing car driver can be employed by the limited company and receive a regular salary, subject to income tax and National Insurance contributions.
If the limited company generates profits, dividends can be declared and distributed to the shareholders, including the driver. Dividends are subject to dividend tax rates, which are typically lower than income tax rates.
The limited company can make pension contributions on behalf of the racing car driver, providing potential tax advantages and retirement planning opportunities
Utilising a limited company structure can offer professional racing car drivers in the UK numerous benefits.
By establishing a limited company, drivers can take advantage of tax deductions, lower tax rates, and flexibility in income distribution.
However, it is crucial for drivers to consult with tax professionals and adhere to relevant regulations to ensure compliance and maximize the advantages offered by limited company structures.