Can you be a sole trader and a director of your own Ltd Co?
Discussion
Odd question, but I'm sure someone here will know and please excuse the ramblings as I've not really got my head around the concept.
I've a friend who runs a motocross web forum as side project. As he gains some advertising income site he's registered as a sole trader to keep HMRC happy.
He now wants to give up his PAYE job and start up a separate website selling MX parts (this is good news for me being a motocrosser
), for which he wants to incorporate for.
His plan is to not bring the original motocross enthusiast website into the new Ltd company, but instead to keep operating them as a sole trader as well as being a director of his new Ltd Co. This is planned as he "gets better tax breaks for business vehicles being a sole trader".
The area where it starts to get really complicated is he obviously wants to promote his new company via his old website, and have the new company pay him advertising costs (as the existing advertisers do). Regardless of whether this is tax efficient or not (I've not spent a great deal of time trying to work it out but i guess it could be if he can offset the sole trader income against his bike making the money tax free) this set all sorts of alarm bells regarding cross promotion and payments as the sort of practice HMRC would keep a careful eye on.
Is he making a rod for his own back?
I've a friend who runs a motocross web forum as side project. As he gains some advertising income site he's registered as a sole trader to keep HMRC happy.
He now wants to give up his PAYE job and start up a separate website selling MX parts (this is good news for me being a motocrosser
), for which he wants to incorporate for.His plan is to not bring the original motocross enthusiast website into the new Ltd company, but instead to keep operating them as a sole trader as well as being a director of his new Ltd Co. This is planned as he "gets better tax breaks for business vehicles being a sole trader".
The area where it starts to get really complicated is he obviously wants to promote his new company via his old website, and have the new company pay him advertising costs (as the existing advertisers do). Regardless of whether this is tax efficient or not (I've not spent a great deal of time trying to work it out but i guess it could be if he can offset the sole trader income against his bike making the money tax free) this set all sorts of alarm bells regarding cross promotion and payments as the sort of practice HMRC would keep a careful eye on.
Is he making a rod for his own back?
There is nothing wrong with a sole trader business running in parallel with another business which is being operated through a limited company.
However, there are certain areas that could cause problems both from an admin and a tax perspective.
Making sure that the two businesses are genuinely separate might be difficult. There might be a temptation to use one business' bank account to pay for the other bussiness' costs - especially if one of the operations is a bit short on cash. There is nothing wroing with this but keeping tabs on the inter-business relationship regarding debts, liabilities etc can become messy. I have seen many businesses get into an awful tangle on this score.
From a tax point of view it is imperative that the correct income and expenditure is shown correctly in the appropriate businesses.
If the company "lends" money to the sole trader, their is a danger that the limited company might emcounter Section 419 and Benefit in Kind) problems as it can be seen to have loaned money to a director.
If the company pays money to the director as part of his remuneration package from the company, that money should be taxed under the PAYE?Class 1 NIC system as "Director's Remuneration" The company should not pay any money for the director directly into the sole trader business. A company cannot pay a director as if he were an outside sole trader doing work for the company.
However, there are certain areas that could cause problems both from an admin and a tax perspective.
Making sure that the two businesses are genuinely separate might be difficult. There might be a temptation to use one business' bank account to pay for the other bussiness' costs - especially if one of the operations is a bit short on cash. There is nothing wroing with this but keeping tabs on the inter-business relationship regarding debts, liabilities etc can become messy. I have seen many businesses get into an awful tangle on this score.
From a tax point of view it is imperative that the correct income and expenditure is shown correctly in the appropriate businesses.
If the company "lends" money to the sole trader, their is a danger that the limited company might emcounter Section 419 and Benefit in Kind) problems as it can be seen to have loaned money to a director.
If the company pays money to the director as part of his remuneration package from the company, that money should be taxed under the PAYE?Class 1 NIC system as "Director's Remuneration" The company should not pay any money for the director directly into the sole trader business. A company cannot pay a director as if he were an outside sole trader doing work for the company.
One of the areas you highlighted was the 'better breaks for business vehicles being a sole trader'. Why does he think this? If he should use his 'sole trader' business vehicle in the limited company he would not be able to claim for its use in the sole trader business for those particular miles. He would also be hard pressed to claim a delivery van was required for a web forum rather than a parts business.
The rules for business vehicles in limited companies is relatively simple. For cars, rather than trade vehicles, I would suggest the car is his not the company's and he reclaims costs via mileage reimbursement as generally being more tax efficient for a ltd company owner.
The rules for business vehicles in limited companies is relatively simple. For cars, rather than trade vehicles, I would suggest the car is his not the company's and he reclaims costs via mileage reimbursement as generally being more tax efficient for a ltd company owner.
Eric Mc said:
The company should not pay any money for the director directly into the sole trader business. A company cannot pay a director as if he were an outside sole trader doing work for the company.
Interesting. I've been advised, more than once, in the past that one can be a self-employed when working for a limited company of which one is a Director, providing that the services being provided on a self-employed basis are not those of being a Director per se. There has been at least one HMRC investigation which has cleared this arrangement, too.Have things changed recently?
Eric Mc said:
However, there are certain areas that could cause problems both from an admin and a tax perspective.
Making sure that the two businesses are genuinely separate might be difficult. There might be a temptation to use one business' bank account to pay for the other bussiness' costs - especially if one of the operations is a bit short on cash. There is nothing wroing with this but keeping tabs on the inter-business relationship regarding debts, liabilities etc can become messy. I have seen many businesses get into an awful tangle on this score.
Is it permitted (from HMRC standpoint) to actually share a bank account which belongs to LTD by both LTD and a sole trader?Making sure that the two businesses are genuinely separate might be difficult. There might be a temptation to use one business' bank account to pay for the other bussiness' costs - especially if one of the operations is a bit short on cash. There is nothing wroing with this but keeping tabs on the inter-business relationship regarding debts, liabilities etc can become messy. I have seen many businesses get into an awful tangle on this score.
jon- said:
Is he making a rod for his own back?
Yes. I speak from experience.
As one or both businesses grow, you end up spending a huge amount of time on basic administration to keep the various masters and commanders happy; as explained by Eric.
This has a negative effect on the business which then compounds the problem.
Your friend may well get some benefits but this has to be considered in the wider context of things.
One tends to find that the simpler the business, the better the business.
I am both self employed as well as a directory of my own Ltd company. I'm self employed as I prefer to keep the advertising earnings from a side project (web site) separate to my main business (web development) in case I decide to sell all of part of one in the future.
This does make things a little more complex for accounting and I'd probably be better off running everything through the Ltd company, however the two businesses are entirely seperate and do not have any financial connections so in my mind are separate entities.
This does make things a little more complex for accounting and I'd probably be better off running everything through the Ltd company, however the two businesses are entirely seperate and do not have any financial connections so in my mind are separate entities.
Newby here. Had been searching for Ltd co 'V' Sole Trader and this one fits.
I own a limited company and it bought a Hilux which I use privately (and pay full tax on). I have just started up a separate sole trader company and would like to use the pickup for that. The limited co is oil related and does not need lettering on the pickup, but the sole trader is a tradesman company and does need lettering.
Can I, because I pay for the vehicles use, put lettering for sole trader on it (with permission from the limited company of course ) or would HMRC frown upon that?
I own a limited company and it bought a Hilux which I use privately (and pay full tax on). I have just started up a separate sole trader company and would like to use the pickup for that. The limited co is oil related and does not need lettering on the pickup, but the sole trader is a tradesman company and does need lettering.
Can I, because I pay for the vehicles use, put lettering for sole trader on it (with permission from the limited company of course
) or would HMRC frown upon that?I don't think HMRC would care that much about where you advertise you sole trader activity. You are simply using the vehicle as an advertising hoarding in my opinion.
HOWEVER, the vehicle is currently owned by the limited company and it would normally be expected that the limited company is liable for and pays all the running costs of that vehicle. If the vehicle is actually being used, as a vehicle, not a mobile advert, by the sole trader, then it is obviously a taxable Benefit in Kind being provided to the sole trader by the limited company.
You say that you already pay the tax on the vehicle. That could mean a million things but IF it means that you, personally, are already paying the maximum PAYE you would be expected to because you as an individual have the use of a company owned vehicle i.e. you are paying the right tax under the Benefit in Kind system, then you may already be paying all the tax you will ever have to pay on that vehicle. So adding some letters to the side and driving it around carrying sole trader related stuff won't add anything to the personal tax burden.
What you SHOULD NOT DO is try to claim any of the vehicle running costs through the sole trader business.
HOWEVER, the vehicle is currently owned by the limited company and it would normally be expected that the limited company is liable for and pays all the running costs of that vehicle. If the vehicle is actually being used, as a vehicle, not a mobile advert, by the sole trader, then it is obviously a taxable Benefit in Kind being provided to the sole trader by the limited company.
You say that you already pay the tax on the vehicle. That could mean a million things but IF it means that you, personally, are already paying the maximum PAYE you would be expected to because you as an individual have the use of a company owned vehicle i.e. you are paying the right tax under the Benefit in Kind system, then you may already be paying all the tax you will ever have to pay on that vehicle. So adding some letters to the side and driving it around carrying sole trader related stuff won't add anything to the personal tax burden.
What you SHOULD NOT DO is try to claim any of the vehicle running costs through the sole trader business.
Thanks guys.
The Ltd co is VAT registered but the Sole Trader will not be. Because it's a pickup I pay very little in tax for it, however the Ltd co does pay for diesel, for which I pay about £200/year in tax for (I reckon it still saves me money in the long term).
I could pay for the diesel that is used for sole trader miles but I suppose that might be awkward to keep books on.
I thought I was on to a winner, but obviously had doutbts, thus the question here. Looks like those doubts might be mounting
The Ltd co is VAT registered but the Sole Trader will not be. Because it's a pickup I pay very little in tax for it, however the Ltd co does pay for diesel, for which I pay about £200/year in tax for (I reckon it still saves me money in the long term).
I could pay for the diesel that is used for sole trader miles but I suppose that might be awkward to keep books on.
I thought I was on to a winner, but obviously had doutbts, thus the question here. Looks like those doubts might be mounting
Just a slight thread resurrection...
I'm a VAT registered sole trader. I have a client who will only contract to Ltd companies due to IR 35 concerns, so I'm having to set up a Ltd company to secure the long-term contract. Can I use my sole trader status for my existing clients and the Ltd company for the new client? If I do this, it will mean that I'm likely to be below the VAT threshold for either entity. I take it that I don't need to be VAT registered in this case for either (irrespective of whether it is beneficial)?
I'm a VAT registered sole trader. I have a client who will only contract to Ltd companies due to IR 35 concerns, so I'm having to set up a Ltd company to secure the long-term contract. Can I use my sole trader status for my existing clients and the Ltd company for the new client? If I do this, it will mean that I'm likely to be below the VAT threshold for either entity. I take it that I don't need to be VAT registered in this case for either (irrespective of whether it is beneficial)?
HMRC do not like a person running two businesses parallel one being VAT registered and one not, especially if the nature of the two businesses are pretty much identical i.e. they do the same type of work and are run and administered by the same people.
Why would your "customer" be worried about IR35?
Whether he pays you as a sole trader or not has no bearing whatsoever as far as his business is concerned. He may want to deal with you as a limited company in order to prevent him from worrying about having to engage you as an employee. That is not an IR35 matter. That is an employee/self employment matter.
BY YOU having to set up a limited company, the IR35 concern is YOIUR'S not his.
What has your accountant said?
If you are an established sole trader with multiple customers and it's obvious you are a business, his concerns about whether you should be on his payroll or not should be allayed. He should not be stipulating to third parties how they should set up their business. That is absolutely NONE of his business.
Why would your "customer" be worried about IR35?
Whether he pays you as a sole trader or not has no bearing whatsoever as far as his business is concerned. He may want to deal with you as a limited company in order to prevent him from worrying about having to engage you as an employee. That is not an IR35 matter. That is an employee/self employment matter.
BY YOU having to set up a limited company, the IR35 concern is YOIUR'S not his.
What has your accountant said?
If you are an established sole trader with multiple customers and it's obvious you are a business, his concerns about whether you should be on his payroll or not should be allayed. He should not be stipulating to third parties how they should set up their business. That is absolutely NONE of his business.
Many thanks for the reply Eric.
As is so often the case, an outine summary of an issue doesn't provide opportunity to explain all and it's not as simple as I perhaps indicated. I'm with the accountants next week, but I just wanted to get a general understanding before seeing them. The basic premise that HMRC isn't comfortable with similar trades operating independently by a single owner is what I was after.
As is so often the case, an outine summary of an issue doesn't provide opportunity to explain all and it's not as simple as I perhaps indicated. I'm with the accountants next week, but I just wanted to get a general understanding before seeing them. The basic premise that HMRC isn't comfortable with similar trades operating independently by a single owner is what I was after.
Gassing Station | Business | Top of Page | What's New | My Stuff