advice needed please :)

[thierryrichards]

Hi All

Looking for some advice really.

I am setting up a small ecommerce business, only "small" because im on a tight budget.

Now I will be working part time to live, so anything I make will be pumped back into stock etc. Something I feel many people fail to do when starting up leading to hard times.

Anyway with the fact i wont be drawing ANY wage, I need advice as to what to set up as, sole trader or Ltd.

Obviously to start, the turnover will be small, however as I will reinvest all income, I hope the rate of growth is fairly quick

Any advice would be more than welcome

regards

 

[SetupaCompany]

Start off as a sole trader until you have proven your business model and can see long-term profitability that would justify setting up as a Limited company.

 

[PrestonLad]

I guess the best advantages of being Limited, is the limited liability if it all goes pear-shaped.

But there are several drawbacks... mainly related to the admin side of things, some of which consume time, others consume money.

As you're in ecommerce and starting off small, it's likely that your 'liability' will be manageable anyway, so there doesn't seem much point in limiting it.

 

[lazypbx]

Agreed. I think the best way is to start off as a sole trader, and you can set up a limited company quite quickly and easily when the need arises.

One of the drawbacks of a limited company is the increased amount of admin, not least to mention the book-keeping/accountancy side of things which is much more time consuming. If you are paying an accountant to do your finances, there will be quite a difference in what you pay them for sole trader accounts over company accounts due to the extra work involved.

 

[Joyous]

... not least to mention the book-keeping/accountancy side of things which is much more time consuming.

I feel the need to jump in here. In terms of bookkeeping there is little difference between trading as a sole trader or a limited company. Obviously there will be some transactions that are particular to how you choose to trade, e.g. no share capital if a sole trader, but by and large the bookkeeping requirements are the same.

There may well be a difference in accountancy fees, mainly because sole traders are not obliged to produce year end accounts, they merely need to have data good enough to produce a tax return.

As with previous posters I would agree that, all things being equal, it would be wise to test your business model as a sole trader and then incorporate at a later date if you so choose.

Regards

Joy

 

[finleydesign]

Would advise sole trader unless you know its going to take off within the first year

Not sure if you have also considered the VAT part, and often in ecommerce well worth registering even if you don't go over the threshold as within a startup you can also claim a lot of VAT back from start up costs etc

 

[WrightPsychology]

Like everyone else, Sole Trader to begin with.

 

[cheaper accountant]

If you are already working and earning a decent salary then you might benefit more from the limited company route, especially since you don't want to draw any cash from the company.

Operating as sole trader means that your business profits will be taxable at your marginal rate of tax and you might find you pay less tax operating a limited company.

This is in general terms and until all the facts of your income, etc is known it is difficult to advise on your specific circumstances.

 

[The Business Hub]

Hi All

Looking for some advice really.

I am setting up a small ecommerce business, only "small" because im on a tight budget.

Now I will be working part time to live, so anything I make will be pumped back into stock etc. Something I feel many people fail to do when starting up leading to hard times.

Anyway with the fact i wont be drawing ANY wage, I need advice as to what to set up as, sole trader or Ltd.

Obviously to start, the turnover will be small, however as I will reinvest all income, I hope the rate of growth is fairly quick

Any advice would be more than welcome

regards

Hi Thierry,
If you are earning less than £7,000 as a sole trader then you are arguably better off keeping this as a sole trader. This is because you will not have to pay class 4 National Insurance on your self-employment income. Until your combined employment income and singing income exceed £42k, you will pay 20% income tax as a sole trader. You would also pay 20% corporation tax as a company. The main downside of the company is that accountancy fees and compliance obligations are greater.

If your self-employment income is greater than £7k you will pay 9% class 4 National Insurance so you may then be into the realms where registering a company and extracting the profit as a dividend would be better.

If you are happy to post up your gross salary and your projected income from the singing, then I can give you an indication as to the tax liabilities under each route so that you can judge which will be better.

 

[webgeek]

I disagree strongly about the idea that you "start off as a sole trader until you have proven your business model" or "test your business model as a sole trader".

If you're entering into business with the attitude that, "I'll give this a go and see what happens. I might fail, or I might succeed. If I succeed, then I'll do X, Y or Z", then your odds of success are slim from the get-go!

We launched our business as a LTD with flat rate VAT from the beginning, knowing that this business would succeed. How much effort would be required was unknown, but failure was not an option (probably because NOT paying rent and NOT eating wasn't an option).

Sure, we have total bookkeeping/accounting overhead of about £1200 per year, but that includes company tax filings, director taxes, VAT, everything. All we do is enter invoices, expenses and income into an online portal, and everything else is done for us. That leaves us to manage the business and not be distracted by something which, for us, is not enjoyable.

There are several benefits to the LTD, so go for it, and make the best use of them as possible, from day 1. That means later down the road you won't have to change horses in mid-stream. Put things in order from the beginning, and don't look back.