Sole trader / Ltd Company?
Discussion
Mrs. K is about to set up her own business - been discussing it for ages and we've now decided to just go for it. It's really just an extention of one of her hobbies - and if it succeeds then great - if it flops - then no big deal as we're not reliant on it in any way.
Anyhow - we have a company name - of which the .com and .co.uk domains are available and a quick check at Companies house shows us that the name is not registered.
The question I have - if she operates as a sole trader, does she need to register the company name? Or can she simply trade as that name?
Or should she register as a Ltd company?
We're going to speak to an accountant to find out the best options we have from a tax point of view (she's a full-time mum/housewife and I'm hit at 40% tax rate).
I'd be grateful for any initial pointers.
Many thanks in advance,
K
Anyhow - we have a company name - of which the .com and .co.uk domains are available and a quick check at Companies house shows us that the name is not registered.
The question I have - if she operates as a sole trader, does she need to register the company name? Or can she simply trade as that name?
Or should she register as a Ltd company?
We're going to speak to an accountant to find out the best options we have from a tax point of view (she's a full-time mum/housewife and I'm hit at 40% tax rate).
I'd be grateful for any initial pointers.
Many thanks in advance,
K
There is no requirement to register a "Trade Name" if you are a sole trader.
Think carefully before going down the limited company route. Although there are perceived (and sometimes genuine) tax advantages - a limited company is more onerous to run with more deadlines to meet and more penalties to face if things go wrong. The main advantage of a limited company is really the commercial advantage of "limited liability". I would only recommend limited liability if the business is relatively risky, is going to expand rapidly and turnover levels are going to achieve the £50,000 to £100,000 fairly quickly.
Think carefully before going down the limited company route. Although there are perceived (and sometimes genuine) tax advantages - a limited company is more onerous to run with more deadlines to meet and more penalties to face if things go wrong. The main advantage of a limited company is really the commercial advantage of "limited liability". I would only recommend limited liability if the business is relatively risky, is going to expand rapidly and turnover levels are going to achieve the £50,000 to £100,000 fairly quickly.
No probs.
However, don't be lulled into thinking that Self Employment doesn't come with its own raft of deadline dates too. Here are some you might like to be aware of:
Notification to Inland Revenue that a Sole Trader activity (i.e. Self Employment) has started - three months from date of commencement - failure to notify penalty £100.
Completion of Self Assessment tax return form - 31 January following end of previous tax year(i.e. 31 January 2005 for tax year 2003/04). Late submission of tax return - £100 (if there is a tax liability).
Payment of previous year's tax liability - 31 January following end of previous tax year (i.e 31 January 2005 for tax year 2003/04).
Tax Payments on Account for following tax year - 31 January and 31 July.
>> Edited by Eric Mc on Sunday 17th October 09:35
However, don't be lulled into thinking that Self Employment doesn't come with its own raft of deadline dates too. Here are some you might like to be aware of:
Notification to Inland Revenue that a Sole Trader activity (i.e. Self Employment) has started - three months from date of commencement - failure to notify penalty £100.
Completion of Self Assessment tax return form - 31 January following end of previous tax year(i.e. 31 January 2005 for tax year 2003/04). Late submission of tax return - £100 (if there is a tax liability).
Payment of previous year's tax liability - 31 January following end of previous tax year (i.e 31 January 2005 for tax year 2003/04).
Tax Payments on Account for following tax year - 31 January and 31 July.
>> Edited by Eric Mc on Sunday 17th October 09:35
We registered a company for one of Cosmic's (Mrs.RB's) businesses for exactly the same reason, against the advice of our accountant since we were incurring far higher setup and running costs then we would have with her being a Sole Trader, especially given the projected turnover and profit.
With hindsight, our accountant was right and I was wrong, especially since once the Companies House website started offering basic trademark searches we discovered that the company name was in fact somebody else's Registered Trademark. Oops.
She's since ceased trading in that line of business and we've wound up that company. She now does something else. This time we've just gone the Sole Trader route.
With hindsight, our accountant was right and I was wrong, especially since once the Companies House website started offering basic trademark searches we discovered that the company name was in fact somebody else's Registered Trademark. Oops.
She's since ceased trading in that line of business and we've wound up that company. She now does something else. This time we've just gone the Sole Trader route.
I have done both, starting as a sole trader and then becoming a limited company as we grew.
Positives: tax and NI breaks until Mr Brown plugs them by taking profits as share dividend rather than wages (you need a special class of share set up to do this I understand). Limited liability if things go bump. Viewed more positvely by clients for some reason, especially central govt departments I think. Makes you a bit more transparent (which may be a negative from a privacy position?).
Negatives: You can't get at the profits quite as easily or as quickly without the tax man rubbing his hands with glee.
Paperwork: annual accounts submission (my accountant does this) and a simple anulal return, and need to tell companies house of changes of registered ofices and directors etc, most of which can be done on the web.
Positives: tax and NI breaks until Mr Brown plugs them by taking profits as share dividend rather than wages (you need a special class of share set up to do this I understand). Limited liability if things go bump. Viewed more positvely by clients for some reason, especially central govt departments I think. Makes you a bit more transparent (which may be a negative from a privacy position?).
Negatives: You can't get at the profits quite as easily or as quickly without the tax man rubbing his hands with glee.
Paperwork: annual accounts submission (my accountant does this) and a simple anulal return, and need to tell companies house of changes of registered ofices and directors etc, most of which can be done on the web.
I'd disagree Shirepro.
You don't need a special share class to get dividends, and it's very straightforward to get your hands on the profits.
Gordon Brown has taken steps to make it less attractive for owner-managers to be paid dividends than salary, but both are better than being self-employed.
In my opinion (as an accountant specialising in small businesses/the self employed).
You don't need a special share class to get dividends, and it's very straightforward to get your hands on the profits.
Gordon Brown has taken steps to make it less attractive for owner-managers to be paid dividends than salary, but both are better than being self-employed.
In my opinion (as an accountant specialising in small businesses/the self employed).
My personal experience was as follows:
1) First company was a LTD, requiring all of the above, and costing a lot more to run. Went this route initially for the protection it offered. Costly way to run a small business IMO. Offered easy new credit status, as mentioned here earlier, other partners see you as more professional, and directorship has / had benefits especially for pensions fundage.
2) Sold first company as "going concern" Bought out by large company that was 'hoovering up' small security companies like mine. Thankyou very much - £40k in the bank for doing f. all
3)Second company: Sole Trader. Intermittant trading (awkward line of work), and relatively secure. Minimal overheads, ease of paperwork, and most of all my private information is NOT publically available. This was very important due to the nature of my business (which I cannot say due the sensitivity of the work I do).
4) Third company: New business, big clients based all over Europe, but selling specialist machine parts, so holding stock and on RMA agreement to deliver to tight schedules. Only supplying parts occasionally, but good markup so don't make many transactions. The solutions for this one was Sole Trader, but with BIG insurance indemnity protection against failing to deliver / wrong advice. The cost of the insurance, is still negligible compared to the cost of going LTD, but again, best thing is no one can check out my accounts (and hence suppliers) with Companies House.
I am now awaiting VAT registration as I am about to hit the threshold, and I can also use this for my other current business. Hopefully I can get something back on the tax man!
1) First company was a LTD, requiring all of the above, and costing a lot more to run. Went this route initially for the protection it offered. Costly way to run a small business IMO. Offered easy new credit status, as mentioned here earlier, other partners see you as more professional, and directorship has / had benefits especially for pensions fundage.
2) Sold first company as "going concern" Bought out by large company that was 'hoovering up' small security companies like mine. Thankyou very much - £40k in the bank for doing f. all
3)Second company: Sole Trader. Intermittant trading (awkward line of work), and relatively secure. Minimal overheads, ease of paperwork, and most of all my private information is NOT publically available. This was very important due to the nature of my business (which I cannot say due the sensitivity of the work I do).
4) Third company: New business, big clients based all over Europe, but selling specialist machine parts, so holding stock and on RMA agreement to deliver to tight schedules. Only supplying parts occasionally, but good markup so don't make many transactions. The solutions for this one was Sole Trader, but with BIG insurance indemnity protection against failing to deliver / wrong advice. The cost of the insurance, is still negligible compared to the cost of going LTD, but again, best thing is no one can check out my accounts (and hence suppliers) with Companies House.
I am now awaiting VAT registration as I am about to hit the threshold, and I can also use this for my other current business. Hopefully I can get something back on the tax man!
I run my own business and was initially a sole trader but then decided to become a limited company purely for the liability issue. Basically in today's culture of people sueing you for the smallest thing you either have to have adequate insurance or you need to limit your liability in some way. If you are a sole trader and someone decides to sue you then then they take your savings, house, car etc. However, if you are a limited company then they can take all the money in the company but can't touch your personal stuff in the same way (and in this scenario you just declare the company bankrupt and close it down).
So the advice I would give is just consider the risks/benefits - if you are sure no-one is ever going to sue you then fine, but for a bit of extra paperwork (or an extra £100 to get your accountant to do it) is it really worth putting everything you have on the line?
So the advice I would give is just consider the risks/benefits - if you are sure no-one is ever going to sue you then fine, but for a bit of extra paperwork (or an extra £100 to get your accountant to do it) is it really worth putting everything you have on the line?
An extra £100 - you must be joking. For two similar sized companies, whatever you pay to your accountant as a sole trader, expect a fee at least double that for the equivalent sized company. If the company requires an audit, treble the fee.
Things companies need that sole traders don't -
statutory accounts set out in defined formats
submission of said accounts to Companies House
completion of Companies House annual return
notification to Companies House of changes to the company's set up in the year
completion of complicated Corporation Tax return form and submission to the Inland Revenue
more complicated (and expensive) tax planning advice - usually consisting of the comparison of tax savings between dividends and salaries
registration of company for PAYE purposes so that administration of directors' salaries can be performed
A sole trader will only ned to register for PAYE if the business takes on staff.
once a business registers for PAYE, that will result in a lot more paperwork, form filling and Inland Revenue deadlines to worry about (and pay for)
directors running their own one man band company usually need careful monitoring of the way in which they use the company to pay for personal non-business expenses - especially in view of the draconian measures which can be taken against companies which allow the directors' loan accounts to slip into what is called an "overdrawn" state
Too many people start trading through companies without being aware of all the additional costs and time involved.
Things companies need that sole traders don't -
statutory accounts set out in defined formats
submission of said accounts to Companies House
completion of Companies House annual return
notification to Companies House of changes to the company's set up in the year
completion of complicated Corporation Tax return form and submission to the Inland Revenue
more complicated (and expensive) tax planning advice - usually consisting of the comparison of tax savings between dividends and salaries
registration of company for PAYE purposes so that administration of directors' salaries can be performed
A sole trader will only ned to register for PAYE if the business takes on staff.
once a business registers for PAYE, that will result in a lot more paperwork, form filling and Inland Revenue deadlines to worry about (and pay for)
directors running their own one man band company usually need careful monitoring of the way in which they use the company to pay for personal non-business expenses - especially in view of the draconian measures which can be taken against companies which allow the directors' loan accounts to slip into what is called an "overdrawn" state
Too many people start trading through companies without being aware of all the additional costs and time involved.
I guess it depends who you get to do your accounts! I avoid the big accountancy firms and get a local independent accountant to do my books, and my bill for her only increased by £100 from operating as a sole trader versus a company (although obviously I did have some additonal costs in getting her to set the compnay up for me and do all the paperwork etc.). However, my business if just a small consultancy with only a couple of employees, so I take your point that the more people you have the more expensive it gets to do PAYE etc.
.Hi appropriate thread as I am heading down this very route.
I have been advised to go Ltd Co and VaT registered even if i dont hit the threshold. Which I won't.
Reasons, more proffessional, better tax advantages (low salary and dividends)&(recovering the VAT on anything I buy etc).
Company will be offering design/drafting experience and on a totally different level, property maintenance.
Most of the design/drafting work will be contract, to other larger companies who are also VAT reg etc.
This advice was offered to me by a friend and recruitment agency guy who acts for a lot of draffies in the NE of England.
ps going to see an accountant later this week or early next, so may have more info then
I have been advised to go Ltd Co and VaT registered even if i dont hit the threshold. Which I won't.
Reasons, more proffessional, better tax advantages (low salary and dividends)&(recovering the VAT on anything I buy etc).
Company will be offering design/drafting experience and on a totally different level, property maintenance.
Most of the design/drafting work will be contract, to other larger companies who are also VAT reg etc.
This advice was offered to me by a friend and recruitment agency guy who acts for a lot of draffies in the NE of England.
ps going to see an accountant later this week or early next, so may have more info then
A visit to the accountant (make sure he/she is properly qualified( is strong;y advised.
Your company looks like it mat be carrying on two very different trades. Makle sure your accountant is aware of this as running two trades under one company, whilst allowed, can cause tax complications.
As you are undertaking contract work, make sure IR35 issues are explained to you and that you fully understand them. Also make sure that the businesses you are contracting with are also up to speed on IR35 matters.
Regarding dividends, be aware of the recent changes made to the Corporation Tax rules regarding dividends and get the accountant to explain to you how these new rules affect your overall tax position.
Your company looks like it mat be carrying on two very different trades. Makle sure your accountant is aware of this as running two trades under one company, whilst allowed, can cause tax complications.
As you are undertaking contract work, make sure IR35 issues are explained to you and that you fully understand them. Also make sure that the businesses you are contracting with are also up to speed on IR35 matters.
Regarding dividends, be aware of the recent changes made to the Corporation Tax rules regarding dividends and get the accountant to explain to you how these new rules affect your overall tax position.
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