Everyone knows that you must use the correct SIC code when completing your HM Revenue & Customs’ Corporation Tax forms. Right! But what’s an SIC code anyway, and why are they important?
SIC codes are taken from the Standard Industrial Classification which was taken over by International Organization for Standardization in the year 1988. SIC Codes are used to classify businesses for statistical purposes and there is some debate as to whether it should be revised or replaced with some other system. It’s definitely living on borrowed time though, so if you’ve read this far, please do try and commit at least some of these codes to memory!
Whilst deciding what type of property business entity would suit your requirements best is not an exact science, knowing which SIC code to use for this business would be a good indicator of what type of entity you are trying to create.
Let’s look at two example companies within the property industry, each with their own particular intended direction. The first company is an individual that has chosen to go into business for himself or herself by buying and renting out one or more buy-to-lets in his home town while working full time elsewhere. This person may also undertake some refurbishment work on properties he has purchased so as to maximise rental yield or improve his personal portfolio value should he decide later sell it at a profit. He wants the structure of being self-employed but wishes to avoid having unnecessary accounting rules imposed on him.
The second company is a partnership between two friends who have pooled their resources to buy and manage a number of properties in an area they know well. They want to maximise their earning potential through economies of scale so are looking to take on more properties as soon as possible.
- So, which SIC code should these two examples use? The answer is based on the nature of the activities being undertaken by each company and would be either 55200 (letting of own property except dwellings) or 68100 (real estate activities).
As you can see, it’s important to understand what your business is doing in order to correctly identify which SIC code best suits it. This will then help determine the legal structure you need to set up your company or limited liability partnership within.
SIC code for real estate activities
The SIC code for real estate activities is 68100. This is the code for all activities not included in other categories such as renting and operating of own or leased real estate, buying and selling of own or leased real estate, developing and subdividing land etc.
So, if you are thinking of starting a property business, it’s important to research which SIC code best describes the activities your company will be undertaking. Once you have this information, you can then begin to look at the legal structure for your company.
If you are still unsure about what type of business entity you should set up for your property company, please get in touch and we would be happy to advise further.
Investing in property
An individual or company generally will want to invest in property so as to increase their wealth, by either renting it out to a tenant and collecting a rental yield or using this property as security for a bank loan in order to finance other business ventures.
The investor does not want the obligations of being an employer but wishes to reduce tax liability by employing his spouse, brother or child. He also wants the structure of being self-employed but wishes to avoid having unnecessary accounting rules imposed on him. In this case, a limited company would be an ideal choice as long as the investor understands the responsibilities and liabilities of being a director.
The SIC code for directors’ remuneration derived from property rental activities is 749200. This means that the rent received by the company is not taxable in respect of the gross amount payable to directors.
If you are an individual looking to start your own business but do not want all of the responsibilities and headaches that come with owning your own business, then starting a limited company may be just what you’re looking for.
If you plan on investing in property – either by directly buying and selling or through a property company – it’s important to identify the SIC code for this type of business activity. This will allow you to determine what kind of legal structure you need for your company and how it should be taxed and regulated.
So, whether you’re starting up a property business, setting up an LLP or just investing in buy-to-let properties, we would love to help find the right solution to help your business thrive.
Need further help?
If you are unsure how this process works, or if you have any concerns about what your company’s future is likely to be, don’t hesitate to get in touch with the team today on +44 (0) 20 7060 5015 or email us @info@mayfairwealthadvisors.co.uk
