Sole Trader v Limited Company.
Discussion
Jon Ison said:
Done a search and done plenty of reading elsewhere but looking for real world advice, as the title says really, currently running as sole trader but thinking of going private limited company, husband and wife team no employees.
Annual Turnover £100k rising.
Depends on a number of things really, but turnover doesn't help in giving any advice whatsoever.Annual Turnover £100k rising.
You say sole trader, but then mention wife, are you in a partnership? what are the profits and how are they split.
Savings can be made if you make large profits and don't withdraw them, but there are increased fees etc to take into account etc, lots to discuss, perhaps your current accountant is the best person to advise?
Over the last three or four years, the government has eroded the tax benefits of limited v' sole-trader. However, they still exist and they can still be worthwhile.
On the assumption that IR35 is not a relevant isssue, the use of dividends is still an effective method of remunerating the director/shareholders and the failure of the Revenue's attack on Mr and Mrs Jones (Arctic Systems Ltd) still leaves dividend splitting as a viable tax planning tool.
Dividends still work tremendously well if the recipients are not higher rate tax payers.
The main advantage of a limited company is still the "limited liability" aspect.
The main downsides are the increased bureaucracy, the increase in the necessity to adhere to government imposed filing and payment deadlines, the almost certain neccessity to register for PAYE and all that entails and the increased professional costs that will be incurred to keep on top of it all.
On the assumption that IR35 is not a relevant isssue, the use of dividends is still an effective method of remunerating the director/shareholders and the failure of the Revenue's attack on Mr and Mrs Jones (Arctic Systems Ltd) still leaves dividend splitting as a viable tax planning tool.
Dividends still work tremendously well if the recipients are not higher rate tax payers.
The main advantage of a limited company is still the "limited liability" aspect.
The main downsides are the increased bureaucracy, the increase in the necessity to adhere to government imposed filing and payment deadlines, the almost certain neccessity to register for PAYE and all that entails and the increased professional costs that will be incurred to keep on top of it all.
Eric Mc said:
The main advantage of a limited company is still the "limited liability" aspect.
Although as I understand it, if the company has loans they can be secured against assets such as the house... so if the business fails they could still lose their house. I stand to be corrected though.That can be the case - although it would only be down to the directors making a decision to borrow or secure a bank overdraft using their own personal assets as collateral. Obviously, if they chose to do this, they are negating to a large extent the reason why they set the business up as a limited company in the first place.
Edited by Eric Mc on Saturday 17th January 17:19
Agreed.
I find it strange that some organisations - I'm thinking Local Government in particular - seem more confident dealing with limited companies but worried about sole traders. To my mind, the limited company can go pop overnight leaving a pile of creditors and incompleted projects, while the sole trader will be still be there.
I find it strange that some organisations - I'm thinking Local Government in particular - seem more confident dealing with limited companies but worried about sole traders. To my mind, the limited company can go pop overnight leaving a pile of creditors and incompleted projects, while the sole trader will be still be there.
Route324 said:
Why? whats the motivation for going Limited?
Hello! You'd have to be mad to trade as a partnership or sole trader.One enters business to earn a living, but events such as this recession can quickly change that.
A limited company if it does nothing else limits your liability to the value of it's shares. Compare that to a sole trader who can lose their home, savings etc.
Don't be stupid only trade via a limited company and don't give personal guarantees (if you have to, limit them to £5000 or less and a time period).
Edited by johnbear on Saturday 17th January 23:48
johnbear said:
Route324 said:
Why? whats the motivation for going Limited?
Hello! You'd have to be mad to trade as a partnership or sole trader.One enters business to earn a living, but events such as this recession can quickly change that.
A limited company if it does nothing else limits your liability to the value of it's shares. Compare that to a sole trader who can lose their home, savings etc.
Don't be stupid only trade via a limited company and don't give personal guarantees (if you have to, limit them to £5000 or less and a time period).
It's not as clear cut as that. For some small traders a limited company may not be appropriate. For instance, I doubt if it would be right for every window cleaner in the land to form a company. Some professionals are also barred from running their activities through a limited company.
A sole trader can minimise his exposure to risk by taking out adequate and appropriate insurance and, for some activities, forming a limited liability partnership might be an option.
Edited by johnbear on Saturday 17th January 23:48
The tax savings are minimal - no different to an ordinary partnership as the partners are taxed on theoir share of partnership income just like in a non-limited partnership. The benefit really is in the "limitation of liability" aspect.
They are increasingly popular with profesional firms (solicitors, accountants, architects, surveyots etc) who may have professional ethical restrictions on trading through limited companies.
For more "normal" traders, a standard limited company is probably still the best option if going down the limited liability path.
They are increasingly popular with profesional firms (solicitors, accountants, architects, surveyots etc) who may have professional ethical restrictions on trading through limited companies.
For more "normal" traders, a standard limited company is probably still the best option if going down the limited liability path.
OK, take your point regarding those who cannot use a limited company for legal reasons.
But even for a window cleaner, an company is a wise protection measure. Insurance doesn't cover you running into debt through no fault of your own. I know IT guy with his own small business employing 2 staff. He slipped of a ladder whilst installing network cables and broke his foot. The fool's he employed sat on their arses whilst he was unable to get to the office and the business went south. Ok, he wasn't the best business man but a limited company would have protected him.
You pay your money and take your chances. £50 for a limited company might the best £50 ever spent in the current enviroment.
But even for a window cleaner, an company is a wise protection measure. Insurance doesn't cover you running into debt through no fault of your own. I know IT guy with his own small business employing 2 staff. He slipped of a ladder whilst installing network cables and broke his foot. The fool's he employed sat on their arses whilst he was unable to get to the office and the business went south. Ok, he wasn't the best business man but a limited company would have protected him.
You pay your money and take your chances. £50 for a limited company might the best £50 ever spent in the current enviroment.
johnbear said:
OK, take your point regarding those who cannot use a limited company for legal reasons.
But even for a window cleaner, an company is a wise protection measure. Insurance doesn't cover you running into debt through no fault of your own. I know IT guy with his own small business employing 2 staff. He slipped of a ladder whilst installing network cables and broke his foot. The fool's he employed sat on their arses whilst he was unable to get to the office and the business went south. Ok, he wasn't the best business man but a limited company would have protected him.
You pay your money and take your chances. £50 for a limited company might the best £50 ever spent in the current enviroment.
It's not just £50 though is it? Increased accountancy fees etc etc.But even for a window cleaner, an company is a wise protection measure. Insurance doesn't cover you running into debt through no fault of your own. I know IT guy with his own small business employing 2 staff. He slipped of a ladder whilst installing network cables and broke his foot. The fool's he employed sat on their arses whilst he was unable to get to the office and the business went south. Ok, he wasn't the best business man but a limited company would have protected him.
You pay your money and take your chances. £50 for a limited company might the best £50 ever spent in the current enviroment.
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