Start up/Tax advice - ltd vs sole trader
Start up/Tax advice - ltd vs sole trader
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Discussion

cramman

Original Poster:

659 posts

225 months

Wednesday 15th February 2017
quotequote all
Hi.

I’m here for some tax/start up advice if possible.
I’m trying to find myself as much info as possible before going to see an accountant so I have the right questions and some understanding.

I’m currently working full time, almost falling into the Higher Rate Tax area but currently not quite. I’m in the process of agreeing terms with my company to work a little in my own time for a friend doing similar work (Flood risk/hydraulic modelling) although on a much smaller scale.

I’m trying to work out the best way to do this. As I understand I have 2 options, sole trader or limited company. As a ltd company I understand that I can probably be more tax efficient and keep the money within the company with the intention of growing slowly where as a sole trader I get paid direct and pay tax at my current rate, probably taking me into the higher tax rate.

Currently I’m thinking this side business may make between 5 and 10K per year.

A couple of questions;
How does VAT work, if I’m a ltd company do I have to pay/charge for VAT, essentially making me more expensive?
Are the benefits of a being a ltd significantly better, Ie expenses claims etc. I will need to visit sites and clients. I understand as a sole trader I can claim mileage, but as a limited company could I buy a car?

I’m sure I’ll be back with more but I appreciate any advice.



rich12

3,468 posts

184 months

Wednesday 15th February 2017
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If you're only expecting to have a turnover of less than £10k then I wouldn't even be thinking of becoming a ltd company or even registering for VAT as you'll be well under the threshold.

Eric Mc

125,790 posts

295 months

Wednesday 15th February 2017
quotequote all
OP - YHM

cramman

Original Poster:

659 posts

225 months

Wednesday 15th February 2017
quotequote all
Thanks Rich, Eric has just said the same after a very useful phone call, so thanks again Eric, much appreciated.

dartissimus

954 posts

204 months

Wednesday 15th February 2017
quotequote all
Easy stuff:

Become a Limited company to ringfence your assets / protect yourself against potential liability, plus inheritance issues for the future, plus other tax savings.

VAT, are you Business to business? if so customers won't mind VAT as they can reclaim it as can you on your expenses.

And I'm not even an accountant.

Eric Mc

125,790 posts

295 months

Wednesday 15th February 2017
quotequote all
Not as simple as that.

For example, if the business envisages making a tax loss in its early years (not unusual - especially if there are significant items of capital expenditure on which Capital Allowances can be claimed), then staying as a sole trader may be very useful because you could use those losses to claim back taxes paid elsewhere, such as under PAYE.