Business Trading Format

[Mike Grant]

We are limited, but I inherited that when I took over the company.

🙄 Limited brain 🙄

[Sparky]

Hi Phill,

For what it’s worth …

Donna runs “our” business as a sole trader & has since starting 3 years ago. At the time I still had my electrical business & had run that as both sole T & a limited company.

A Ltd. Co. does have obvious advantages but I found the biggest drawback for a small operation (I only employed 6 people) was that the only legal way for me to extract money from the business was via PAYE.

Horses for courses but imho there’s not much to be gained unless

a) you have a very large or unstable turnover
b) you have one or two big clients that *could* sink the company
c) the obvious, running the business in the grey areas & sinking it 🙁

Not much help but might throw a few ideas up that the “experts” don’t always explain in laymans terms

Regards,

Spark

[John Childs]

I’m afraid I have to disagree with you Sparky. I went limited three years ago and the following were all contributory factors:-

As the number of employees rose, coincidentaly to six, I was worried about my personal exposure to spurious claims which could result in a tribunal and a large award against me. I have not been working for over thirty years to have a large proportion of what I have saved being given to a disgruntled ex-employee making a malicious claim.

Health and Safety issues making an employee falling off a ladder at home being acceptable, whilst if they did the same thing at work it would be my fault. Sure, we are insured for that sort of thing but can we really be sure that our insurance companies will not find a way to weasel out of a claim? Why take the risk?

Taxation. I pay a lot less tax now as I pay 40% on only that proportion of profit that I take out of the business. If I don’t take it out it is only subject to corporation tax at 25%. Since I went limited the first £10,000 has been made free of tax as well so that’s another 10k I can earn without paying the Revenue.

On the same subject, you CAN legally take money out of a limited company other than via PAYE. Take a proportion as dividends and not only do you have access to your money but you will pay no National Insurance on it. That’s even more valuable now that the rate has gone up by 20% and the upper earnings limit removed.

There were other consideration, but it’s to late at night to think of them, much less put them into coherent English.

To reduce risk to my wealth even further my limited company has absolutely no assets whatsoever other than its bank balance, which can easily be transferred elsewhere. It is purely a trading company. All the buildings, equipment, vehicles etc belong to me personally and I charge the company rent each month for their use.

A word of caution. Don’t reduce your PAYE earnings below the point where you pay anything at all. Keep it just above that limit, pay a little and keep a continuous record of contributions for yourself. This may save a lot of arguments come pension or, heaven forbid, sickness time

I would strongly advise you, or anyone else in the same position, to consider carefully your personal exposure to unnecessary risk and also to see your accountant. And do it soon.

[Sparky]

Hi Jon,

Agree with most of that. I should have stated that it is “EASIER” to extract cash as a sole trader. 😀 except for one small point ..

quote :

Health and Safety issues making an employee falling off a ladder at home being acceptable, whilst if they did the same thing at work it would be my fault

Whilst I was director of my Ltd. Co. EXACTLY the accident you described, happened, almost fatal & I had the reassuring statement from the HSE inspector (on a Saturday morning, on site) that If they chose to prosecute, I would be held responsible despite the 3 following defences of mine …
1. It was NOT my laddder
2. I was not working with him
3. I did not instruct him to climb it
4. None of my other employees has fixed the ladder in position

Can’t win m8, limited or otherwise the HSE will screw you because you have given some incompetent a job !!

[Carrie Brown]

We are a limited company & have been since from the moment we first opened. Previous company was ran as a sole trader. Personally I dont think there are much if’s, but’s, etc. between them? Our accountants advised us to go Limited & I must say they are great…. soooo helpful unlike most you meet.

And as john said….. you can legally take money out of a limited company other than via PAYE. Find a good accountant (not always as easy as said) who wants to help you & your business not just make money from you and they will guide you on the best way to do and how to avoid everything 😀

[Brian Hays]

We changed from a Partnership to Limited company 18 months or so ago. Mainly beacuse we were advised to do so by our accountants to save tax. It has mostly been benificial to us.

The only downside we found was that we had a problem trying to get credit for vehicles bank loans etc. Even our bank that we had been with for 7 years made us sign personal guarantees on a bank loan recently. Not really a problem as we would have been personally liable before anyway I guess. When we tried to lease a van we were turned down by a few people, something that had never been a problem in the past.

[Timmy Mallet]

Became a Limited Company as of today, 😮 a bit of work setting up but well worth the Tax benifits it gives. As above I have been advised it’s the right direction to go by my accountant and should save me between £3,500 and £4,500 a year on tax.

Timmy….

[Adder]

Anyone thinking of company formations etc might find some answers here http://www.uk-plc.net/companyformation/ . I formed a Ltd Co. online and registration was completed in a few hours for about £42.

[ruth]

All the compaines I have run have been Limited, as an IT contractor by trade it’s a neccessary step to prove that you are not an employee but a contractor.

There are many many grey avenues that you can explore as a Limited Company as well as fundementally having the right to walk away from it all if you get into a pickle. Pickles occur for many reasons, some of your making, some of other peoples and because of mis-fortune. If you sign a contract to supply something and in turn a contract to buy something then you run the risk of one contract surviving while the other dies for some reason that’s not your fault. This could leave you in a situation that you simply cannot survive. In this scenario you can escape as a director of a limited company.

As John says, you make sure that your company has no real assets, why risk your car when it’s easier to buy persoanlly and it’s not so hard to negotiate a handsome recompense for business milage with yourself. Likewise premesis can yield high equity returns, why give that cash to the business when you can have it yourself.

With regards access to money. Some accountants want you to hold a board meeting no more than once a quarter to agree any drawings beyond those set out in your last meeting, these accountants should be avoided like the plague. The accountant’s job is to account for what you did. A good accountant will let you do what you want with the company and account for that afterwards. Providing you make a note that you took the money then they can account for that. If you took the money for some company matter then simply note that down. The quality of your accountant will determine your level of happiness as a director of a limited company. Don’t be shy to change accountants if you don’t like your one, all chartered accountants are bound by codes of practice, including full co-operation with your next accountant should you choose to swap.

I personally wouldn’t risk my personal finances in business when there are so many sharks out there and when employees are involved, to gamble your house, car, wife’s happiness etc is madness!

That’s what I think anyway.
Ramjam

[Stone]

I am a limited company and i agree with a great deal above and you can pay yourself dividends as well as your paye. But like Johnchilds has said look after your pension and don’t let it drop below minimum payments required.I am lucky and have a brilliant tax man who also doubles as an account at times this must be a rare thing.But he has saved me a few pennies just in the eight months i have been open.

[John Childs]

Just re-reading this thread.

On April 30th I used an example of an employee falling off a ladder.

On May 1st we had a lot of signs to change and I had decided to subcontract six of them because they were higher than I liked the look of.

You’ve guessed it…. The subbie was working on a fuel station canopy when a sudden sharp gust of wind blew him over his tower guard rail. Fortunately his fall was broken by a car below and he wasn’t seriously hurt.

I have received a bill for the car repairs which I have passed on to him, either to pay or to claim on his insurance.

However, that’s it. Finished. No claim on my policy, no paperwork, no visit from the HSE, no employee wanting time off work to recover and no claim against me. And having no costs I still retain full profit from the job despite the problems.

The point of this scribble is to point out that we could have easily decided to do this job ourselves, especially if other work was slow. Therefore it could have been one of my employees taking the flying lesson and, even with the car underneath, it could have been fatal. Without the lucky presence of the aforementioned car, almost definately so. In those circumstances any protection offered to me personally by trading with limited liabilty status would have been invaluable.

[Martin Pearson]

John you will have to be more careful what you say in future, tempting fate like that. I know it is not your problem but should the fitter have been wearing a safety harness ? Just a thought as whoever you subed it out to might have a problem if he should have been. Theres a lot of new legislation covering access towers and scaffolding.

[stuart]

John

Had you been trading as a sole trader would this have changed any of the items mentioned above?

Surely insurance, either Public or Employers Liability would have been used if it had been a direct employee of yours?

Maybe I am just not understanding how being a director rather than a proprietor can change any of these factors when there is adequate cover in place?

[John Childs]

Martin…

I have no idea.

Stuart…

We have insurance up the ying-yang but I have no confidence in the company not finding a way to wriggle out of paying. Did you read the story, in yesterdays Mail on Sunday, about the lady with critical illness cover which would not pay out after she had a problem which required all her blood being drained, being cooled down to 47 degrees followed by open heart surgery? They said that it wasn?t critical enough.

Who amongst us has a safety policy, statement and procedures that fully comply with all current legislation? My guess would be very few, or, more probably, none. It is amended or revised on a weekly basis. Acquiring the knowledge and expertise for this is a full time job and none of us has that sort of spare time.

Nevertheless, I have a letter from my insurance company stating that unless a fully compliant system is in place then they will not consider a claim that “in their opinion” could have been prevented by the existence of such a system. They are getting their excuses in before I have even made any claim!

I was therefore faced with the choice of attempting my own system, with no guarantee that I had addressed every minor aspect of the law, and being held responsible if I had got it wrong, or commissioning a specialist to do it for me to whom I could point the finger if problems arose. I had no choice but to take the latter option.

To get back to your original question, in this instance nothing would have changed, but the potential was there for a major disaster and it was only a great deal of luck that kept me out of the mire and if things had worked out slightly differently, but for limited liability status, could have bankrupted me.

In my opinion the risks are not acceptable.