Going from sole trader to LTD ?
Discussion
Hey folks looking for people's thoughts on switching over from sole trader to ltd company
Now for a bit of background I run a small taxi company I started off working for someone else and made the switch to working on my own a few years ago. Now I've managed to build things up to the stage I really need to be employing someone else even part time and hence the switch
Is there any obvious pitfalls I need to look out for or can anyone offer some general advice? Obviously I'll be discussing this with my accountant at some point but I'd rather go into that meeting armed with a bit of insight rather than have just one opinion to rely on.
Just to give you and idea of the size of business I would imagine it will be me and one extra employee to and turnover will be below the cat threshold
Now for a bit of background I run a small taxi company I started off working for someone else and made the switch to working on my own a few years ago. Now I've managed to build things up to the stage I really need to be employing someone else even part time and hence the switch
Is there any obvious pitfalls I need to look out for or can anyone offer some general advice? Obviously I'll be discussing this with my accountant at some point but I'd rather go into that meeting armed with a bit of insight rather than have just one opinion to rely on.
Just to give you and idea of the size of business I would imagine it will be me and one extra employee to and turnover will be below the cat threshold
From a pure Income Tax v' Corporation Tax point of view, there would be little if any tax advantages at the moment in setting up a limited company. The tax advantages really start to make a difference when your sole trader profits are high enough to put you into the Higher Rate Tax band - which currently starts at around £42,000.
I would suggest that at the moment you aren't quite in a situation where incorporation starts netting you good tax savings.
However, there are other reasons why a business might want to incorporate - the notion of "limited liability" being one of them.
The big disadvantage of running a limited company is the additional legal and bureaucratic burdens that a company has to deal with - which are roughly four times (in my view) more complex than for a simple sole trader.
I would suggest that at the moment you aren't quite in a situation where incorporation starts netting you good tax savings.
However, there are other reasons why a business might want to incorporate - the notion of "limited liability" being one of them.
The big disadvantage of running a limited company is the additional legal and bureaucratic burdens that a company has to deal with - which are roughly four times (in my view) more complex than for a simple sole trader.
dont suppose you could offer some insight on employing staff as a sole trader?
am i right in thinking i have to deal with this rather than asking my accountant?
my understanding (limited as it is) would be
contact HMRC to declare myself as an employer
sort out the employee stuff right to work etc
sort out employee liability insurance, i believe this is mandatory?
employ said person
sort out all the payroll stuff
now don't know if it makes any difference but said employee is going to be my spouse, don't know if that makes any difference? or would you perhaps suggest going a different route with that, i.e. i wouldn't have a problem naming her as a director or whatever if it makes the process easier as she gets half anyway
am i right in thinking i have to deal with this rather than asking my accountant?
my understanding (limited as it is) would be
contact HMRC to declare myself as an employer
sort out the employee stuff right to work etc
sort out employee liability insurance, i believe this is mandatory?
employ said person
sort out all the payroll stuff
now don't know if it makes any difference but said employee is going to be my spouse, don't know if that makes any difference? or would you perhaps suggest going a different route with that, i.e. i wouldn't have a problem naming her as a director or whatever if it makes the process easier as she gets half anyway
Eric Mc said:
Are your annual business profits (before personal drawings) greater than £45,000?
Is that the point where being taxed as a ltd company trumps being taxed as a sole trader ? Would that be lower if his wife's only income was book keeper for the business, and he paid her £10K (the personal tax limit) ?
VAT is a weird one, it depends who his customers are. If he had lots of corporate clients, and few
private clients, it would be better to go VAT registered, as obviously he can claim back his VAT, as can they, but if all private, then not a great idea if he can avoid it.
its a bloody complex thing looking into it,
currently so simple just now working myself fudge some figures together once a year for the accountant and hand him a bit of cash job done,
it seems to be a proper business type is hard work
perhaps i need to grow a goatee and hit the gym first.
in all seriousness would it be easier to have my wife set herself up as a sole trader and run things as 2 separate businesses? but use one as a subcontractor?
the only problem with that is that it only puts off this headache until we need to bring someone else in
currently so simple just now working myself fudge some figures together once a year for the accountant and hand him a bit of cash job done,
it seems to be a proper business type is hard work
perhaps i need to grow a goatee and hit the gym first.
in all seriousness would it be easier to have my wife set herself up as a sole trader and run things as 2 separate businesses? but use one as a subcontractor?
the only problem with that is that it only puts off this headache until we need to bring someone else in
glasgowrob said:
its a bloody complex thing looking into it,
currently so simple just now working myself fudge some figures together once a year for the accountant and hand him a bit of cash job done,
it seems to be a proper business type is hard work
perhaps i need to grow a goatee and hit the gym first.
in all seriousness would it be easier to have my wife set herself up as a sole trader and run things as 2 separate businesses? but use one as a subcontractor?
the only problem with that is that it only puts off this headache until we need to bring someone else in
Too many questions for a forum to be honest. currently so simple just now working myself fudge some figures together once a year for the accountant and hand him a bit of cash job done,
it seems to be a proper business type is hard work
perhaps i need to grow a goatee and hit the gym first.
in all seriousness would it be easier to have my wife set herself up as a sole trader and run things as 2 separate businesses? but use one as a subcontractor?
the only problem with that is that it only puts off this headache until we need to bring someone else in
Artificially splitting a business between two individuals (especially if they are related - such as husband/wife) is a a definite "no, no" as far as HMRC is concerned.
If you are paying someone to do work for you, the default assumption is that the person is an employee - especially if the person does not engage in any "business" apart from what they are getting from you.
If you pay your wife below the NI threshold (which is around £7,500 per annum - a lot less than the tax threshold), then you may not need to register for PAYE as no PAYE or NI deductions will be needed on her wages. This WILL NOT work if she has a salary from some other employer as well.
Setting up a limited company can be a very beneficial thing to do - but not for everybody. It does depend on the scale of the operation, the likely tax liabilities arising (and NI - don't forget) and how much the individual is prepared to roll their sleeves up and make themselves aware of their legal responsibilities and obligations once they go down the limited company route.
Regarding PAYE, if a sole trader takes on an employee, then yes, the sole trader needs to register for PAYE so they can handle the PAYE and NI deductions on the wages they pay their staff. Most accountants will offer a payroll service so the burden of payroll administration can be offloaded to some extent..
Once a limited company is set up, then the company needs to register for PAYE so that it can administer salaries and wages to both the director(s) and staff.
I kind of agree with that. If you are pretty sure you are going to get to these thresholds sooner rather than later - then a company may not be a bad idea now.
Just be aware that life does get a bit more complicated once you have the company up and running - and it's going to get SERIOUSLY more complicated from March 2016 when new accounting standards and reporting requirements come into effect.
Just be aware that life does get a bit more complicated once you have the company up and running - and it's going to get SERIOUSLY more complicated from March 2016 when new accounting standards and reporting requirements come into effect.
Take a look at this website and see if it is worthwhile.
http://www.uktaxcalculators.co.uk/dividend-vs-sala...
The answer of course is yes it is worth going LTD.
http://www.uktaxcalculators.co.uk/dividend-vs-sala...
The answer of course is yes it is worth going LTD.
Edited by TheHound on Sunday 14th December 16:51
TheHound said:
Take a look at this website and see if it is worthwhile.
http://www.uktaxcalculators.co.uk/dividend-vs-sala...
The answer of course is yes it is worth going LTD.
That is purely looking at companies from a tax point of view. Whilst the tax position is important, ALL factors should be looked at.http://www.uktaxcalculators.co.uk/dividend-vs-sala...
The answer of course is yes it is worth going LTD.
Edited by TheHound on Sunday 14th December 16:51
One of the hardest parts for me in business is "doing things proper" , the paperwork, the admin, the payrolls, vat returns, tax returns etc etc etc etc ....
For me, getting work is easy but all the above stuff is so monotonous, particularly when the business is small and you just want to go make money.
I think, in my field anyway (construction) its probably what stops a lot of guys progressing and instead settling for an easy time, staying under the threshold.
And then theres the amount the taxman takes from you, sometimes make you wonder if really worth it, they really don't make things easy for small business.
Anyway I started off LTD under instruction of my accountant, I've just spent most of my day finding and printing s
t for a vat return....boring. Our next employee will be admin related, this stuff is bogging me down when my time would be better spent elsewhere.
Im offered cash almost every job I go to which I could take, but I don't.
I want a massive house, a v12 vantage for business, a brand new range rover for the mrs, maybe an rs6 for walking the dogs and likely a gallardo for weekends......Yes Im materialistic.
Will I get all this doing cash in hand staying under the threshold ? No. So I guess it depends on what your ambition is.
I have friends who are just happy to be their own boss with a decent wage...Thats not good enough for me.
For me, getting work is easy but all the above stuff is so monotonous, particularly when the business is small and you just want to go make money.
I think, in my field anyway (construction) its probably what stops a lot of guys progressing and instead settling for an easy time, staying under the threshold.
And then theres the amount the taxman takes from you, sometimes make you wonder if really worth it, they really don't make things easy for small business.
Anyway I started off LTD under instruction of my accountant, I've just spent most of my day finding and printing s
t for a vat return....boring. Our next employee will be admin related, this stuff is bogging me down when my time would be better spent elsewhere.Im offered cash almost every job I go to which I could take, but I don't.
I want a massive house, a v12 vantage for business, a brand new range rover for the mrs, maybe an rs6 for walking the dogs and likely a gallardo for weekends......Yes Im materialistic.
Will I get all this doing cash in hand staying under the threshold ? No. So I guess it depends on what your ambition is.
I have friends who are just happy to be their own boss with a decent wage...Thats not good enough for me.
The way accounts are set out for all companies and even sole traders is being fundamentally changed over the next year or so.
Since around 2008, smaller entities in the UK and Ireland have been preparing accounts in accordance with a document called the Financial Reporting Statement for Smaller Entities - referred to as the FRSSE or Frizzie.
Essentially, the Frizzie condensed the appropriate elements from all the Financial Reporting Statements (or FRSs) as issued by the accounting bodies into a simplified form for applying to smaller business accounts.
The Frizzie will be abolished with effect from early 2016 and will be replaced by a new statement called the Financial Reporting Statement for Small and Medium Sized Entities or FRSME (now being referred to as the "Frizmie").
The Frizmie is required because of the issue of a new main FRS called FRS102 which attempts to standardise accounts presentation across the whole of the EU (there are massive variations at the moment).
The layouts set out in FRS102 are very different to old style UK presentation.
The words Profit and Loss Account and Balance Sheet will no longer be used, for example.
The concept of "revaluation reserves" is being abolished.
The manner in which Goodwill can be amortised and written off is being made much less flexible.
There are many other changes.
The Frizmie is an attempt to simplify FRS102 for smaller businesses but it won't simplify matters anything like the old Frizzie did.
The Frizmie is not yet finalised so the full impact of the introduction of FRS102 and the Frizmie is still a bit unclear. This is all a bit worrying because accounts for period starting in 2015 will be affected by this document and directors of limited companies might need to be aware of what they can or cannot do in a few months time..
Since around 2008, smaller entities in the UK and Ireland have been preparing accounts in accordance with a document called the Financial Reporting Statement for Smaller Entities - referred to as the FRSSE or Frizzie.
Essentially, the Frizzie condensed the appropriate elements from all the Financial Reporting Statements (or FRSs) as issued by the accounting bodies into a simplified form for applying to smaller business accounts.
The Frizzie will be abolished with effect from early 2016 and will be replaced by a new statement called the Financial Reporting Statement for Small and Medium Sized Entities or FRSME (now being referred to as the "Frizmie").
The Frizmie is required because of the issue of a new main FRS called FRS102 which attempts to standardise accounts presentation across the whole of the EU (there are massive variations at the moment).
The layouts set out in FRS102 are very different to old style UK presentation.
The words Profit and Loss Account and Balance Sheet will no longer be used, for example.
The concept of "revaluation reserves" is being abolished.
The manner in which Goodwill can be amortised and written off is being made much less flexible.
There are many other changes.
The Frizmie is an attempt to simplify FRS102 for smaller businesses but it won't simplify matters anything like the old Frizzie did.
The Frizmie is not yet finalised so the full impact of the introduction of FRS102 and the Frizmie is still a bit unclear. This is all a bit worrying because accounts for period starting in 2015 will be affected by this document and directors of limited companies might need to be aware of what they can or cannot do in a few months time..
Edited by Eric Mc on Monday 15th December 08:00
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