Sole Trader or Ltd company

[Shane Drew]

my accountant advised me to change from a sole trader to a pty ltd company. More tax incentives here in OZ apparently.

I’d ignore any advice unless it is from your accountant in truth. People mean well, but they may actually have no idea 🙄

[John Wilson]

quote Shane Drew:

People mean well, but they may actually have no idea 🙄

True……… so true 😀

[Andrew Bennett]

Shane’s hit the nail on the head.
bear in mind though the differences between things like NI for a ST and a LTD

[Lee Ballard]

My accountant advised us to become a partnership over a ltd co as unless we were going to be taking out lots of credit then ltd was just alot more hassle and made her alot more expensive. She didn’t rule it out at a later date though, depending on future expansion.

[David Rowland]

Ltd also means VAT to be sorted out, but for startup… might not need that

[Hugh Potter]

surely, Ltd or not, you only go the vat route once you’re turnover in beyond the vat threshold ?

i’m interested in this thread also, as having finally just moved into the girlfriends house, it has to be seperate from ym business, not that i’m living on credit or owt though,

(mind you, the more i learn about these cadets etc, the more tempting it is to go that route when the workload justifies it ! )

i have yet to go to an accountant, and i still have to declare myself self employed to the tax man, got that happy task next week i think,

[Martin Pearson]

Doesn’t matter where you set up, home or in a workshop as a sole trader you will be responsible for any debt, so if the business gets into trouble then any assets you own could be taken from you.
You have some protection as a Ltd Co from this but it costs you more to run the business.
Like Shane has already said speak to an Accountant about it as they will be able to explain all the ins and outs.

[John Harding]

Dave

quote :

Ltd also means VAT to be sorted out, but for startup… might not need that

Not true i think, Ltd co status and vat registration are seperate issues

Hugh

quote :

surely, Ltd or not, you only go the vat route once you’re turnover in beyond the vat threshold

Not quite – Indeed once you hit the threshold you must pay vat, but you can voluntarily register before you hit it, good if you want to claim your vat back and most of your clients are vat registered also

John

[Stephen Morriss]

My wife was told by her accountant that there is no advantage anymore with the ltd companies as you are still liable, not sure if it’s true though as I’ve known accountants be wrong before now.

As to VAT, I thinks that’s only if your turnover is enough. You do have to submit audited accounts though.

Steve

[Hugh Potter]

sorry to jump on yer thread there J dubbaya !

thanks John H, had wondered about vat registered, been told its more hastle than its worth, but then i guess most of my customers would be vat reg’d, hmmm

[David Rowland]

u might be right on VAT reg… we was reselling computer parts in the past.. that was the reason why and the threashold went up this year I think.

This is a nice tidy explanation… http://www.businesslink.gov.uk

Hugh… registering as Self Employed is not an issue, only if you are claiming benefits I suppose.

[John Cornfield]

A couple of business friends were sole traders in graphics in England. I always asked them why they said on advice of accountant. Both ran into cash flow issues with the tax man and both had to go bankrupt. If they were ltd they would have lost the business and any guarantees they had given on loans but they would have not lost the lot or there future possibility of getting credit for mortgages etc.

If you are taking out credit with suppliers for materials, rents or lease for premises and credit for vehicles and equipment then i would say go Ltd it gives you a bit of piece of mind. As if it should start to go wrong then it nomally spirals and before you know it i si a lot worse.

It depends on your business if you are truly a “sole trader” (one man and assistant type business) as most of the sign members appear to be then there are tax benefits of staying sole trader andyou are not amassing large credit liability from suppliers. To be honest the bank will probaby get a guarantee for a loan wich is outside your ltdstatus should you have it. You can always convert to ltd at any point providing the supplier of credit agrees to convert your current unlimited liability account to a limted liability status.

You can register at any point for VAT and do not have to wait for the threshold. There comes a point where it becomes efficient for you to do so but depends on your output vat on purchases. The price quoted by most business is ex VAT so a £100 sign costs customer £117.50 always remember if you are not VAT registered charge the £117.50 build it into your price as the client is getting cheap otherwise. This does not work on business to business sales as they normally want to claim the VAT back themselves.

I have a photographer friend his costs/ output VAT are very small so he is not registered. He invoices as a sole trader for wedding photography and invoices through his wife as a sole trader for comercial and commissioned work. This keeps him within double the VAT thresholdand its legal, nice !

Also note you should as a small business take advantage of cash accounting offered by the vat where you only pay the difference between actual VAT recieved and actual VAT paid ie when client has paid or when ou pay the supplier. This is designed to and should make your repayments easier to handleand has a threshold of £600k after which normal quarterly offset on unpaid VAT is calculated.

Also you can reclaim your VAT on capital equipment up to three years prior to registration.

Going back to the ST or LTD yes talk to an accountant get him to explain what the pros and cons are for you based on income, staff, vehicles, credit. It will vary from person to person.

[David Rowland]

also if u dont plan to go VAT registered now, keep all receipts (i know you do anyway) as when you do go VAT registered in the future, you can claim them for n amount of years.

[John Childs]

Accountants are, with very few honorable exceptions, idiots. On top of that, their own businesses depend on keeping a good relationship with the Inland Revenue so their priorites run in order, firstly – themselves, secondly – the Revenue, and the likes of you and I – a very poor third indeed. Listen to them by all means, but do your own homework before taking any action.

My main reason for going limited, five years ago, was preservation of assets. I didn’t want everything I had worked hard to accumulate over the previous thirty years to be at risk of attack by spurious compensation claims from staff, the public, rapacious government quangos, or anywhere else.

Hopefully it will never happen but, as it stands now, I don’t mind if anyone sues my company for anything. They will be wasting their time because my company has no assets (other than a few quid in the bank which I can get out very smartly if need be) so even if a claim is successful they will get nothing. All of the real assets, property, equipment, vehicles, and so on, belong to me personally and are only rented to the company. I hate having to be that cynical but, in this increasingly litigious age, I consider it essential to protect my wealth, for the benefit of my wife and children’s future welfare, as much as my own.

As a bonus, I also pay less tax. I am paid just enough as a director to be liable for income tax and NI. It costs me about four quid a week but gives me a continuous record of contribution which will be helpful come retirement day. The rest of my pay comes as dividends which, although I have to pay personal income tax on them, are free from NI. On top of this I get the notional rent I charge the company, but this is also NI free.

Don’t forget, if you do go limited, you get a one-off chance to save tax. Instead of just converting your existing operation to a limited company you need to sell your sole trader operation to the new limited company. Any amount you personally receive will be subject to Capital Gains Tax but provided you keep the sale price below your annual CGT allowance of £8000 there will be no tax to pay. Brilliant, except my idiot accountant didn’t tell me in time. I found out myself when it was too late and when I eventually brought it to his attention he agreed I was right and just tried to laugh it off. Hence the reason for my comments at the top of this screed.

Once set up, a limited company involves very little paperwork. An annual return is all I fill in, and that takes ten minutes. Your accountant will charge more but in reality there is hardly any more work for them so if they try to lump it up too much then find another one.

Now we come to the fun bits. There are so many of them but I will limit myself to just one. Every limited company is required by law to hold an Annual General Meeting and the costs are allowable against tax. There are no stipulations on where this should be held so last year we had ours in Florida, a week before Christmas. It was a bit inconvenient because we couldn’t get a flight home at that busy time of year so were stuck there until the new year. 🙂

I wouldn’t trade any other way than limited liability now.

[Kevin.Beck]

dave.

if you can claim back vat from before you were vat registered,

does that mean you have to send vat invoices to all the customers that didn`t pay vat on the old invoices, for services you gave them?

if so, can you imagine the hassel….

[Dave Bruce]

No you don’t Becky, but you can only claim VAT on equipment and stock held at the time of the claim, even so it is could be quite alot if you have bought a few bits of equipment to set up.

I am looking at this at the moment.

Dave

[Carrie Brown]

Yep you can claim the vat back on equipment, materials etc before you vat registered and clai them as “set up costs” we did this when we first opened and we had a nice lump sum given back to us.

Definitely speak to an accountant and a good one …. best way to try and get a good one is to speak to other business owners and get recommendations …. at the end of the day they are in business just as we are to make money so not all can be on the level?

We are a Ltd company and have been since day one ….. you can always start off as sole trader and change to a ltd co. should you feel the need at a later date.

😀