Going Limited?

[c4l]

Hi,

Been considering a new idea.

The car selling thing is too slow for me to do full time, not enough sales - tried everything and no luck. However, I kind of like what i do as my day job as a Civil Engineering estimator.

I'm thinking of setting up a small company that does driveways and patios etc. The idea being that until i can afford to take staff on, I will sub-let the works. E.g. if a drive needs tarmacking, I will hire the staff to do the stone/base work, buy the stone, hire the roller equipment, buy the bulk tarmacadam and then hire in a team of surfacing contractors to do the work - plus a small overhead and profit %. This way, I would no that the work being done is of good quality as i would onlu use quality companies as my own sub-contractors.

This may then lead on to work for councils etc and i could move onto roads and car parks etc.

Firstly, is this a good idea or not?

Secondly - going limited. What are the costs involved with this? Is it worth doing? From what i've heard, I believe it would be. If for example, I built a driveway and it 'went wrong' for whatever reason, wouldn't want someone trying to take away my house and car etc! Limited is surely the answer??

What do we all think of my grand ideas??

 

[multilingual]

Hi,

There are generally two reasons why companies go ltd. One is to reduce the tax liability when a company grows above a certain level. The other is to protect their assets in case of bankruptcy or court procedures.

In your case, I would suggest that the set up and administration of a Ltd company for this new venture would be more costly and be more hassle than if you stayed as a sole trader and just took out some liability insurance to cover for shoddy work.

Just an opinion, but you will need some sort of professional liability insurance anyway because certain County Councils will not allow you to work on driveway repairs without it in case you damage a utility line.

JB

 

[c4l]

Yep - that was another thing i was thinking of.

So you think that insurance would cover me adequately rather than going Ltd.

Isn't limited just a case of £80 to a company such as Duport or any other company formations company?? Obviously, i need to then produce annual accounts.

Anything else?

 

[JoyDivision]

I am pretty sure I have read if the turnover is less than somthing like £40,000 you can get away with producing more basic accounts.

What exact costs are involved in a LTD company? Also how much does producing the accounts cost?

 

[multilingual]

Well, if you are Ltd, then it means that you will have to be an employee of that company. Therefore you have to do all the PAYE for yourself. Also there are thousands of forms to fill in for Customs because they want to keep on top of you. The accounting charges will probably be higher as a ltd company than as a sole trader, plus you have to keep tabs on every penny in and out. (You can't walk into the bank and withdraw cash because you need some new clothes because that money belongs to the company, you are just an employee)

From a tax point of view, it may work out slightly better depending on your profit forecast, but in my opinion, unless the income is significant enough to save you a wedge of tax then don't bother. It's more hassle than you realise.

JB

 

[Astaroth]

Of cause many Ltd company directors pay themselves a wage below the threashold of NI and Income Tax and take their "true" wage as dividends annually.

It is worth seeking professional opinion on what is the best thing to do in your situation and I want to say I am neither an accountant nor a solicitor

The cost of setting up a limited company is very low - if I remember correctly it is in the region of £35 - though there are companies that will assist you for a fee in the region of £100.

As multilingual says, a limited company is a seperate legal entity than yourself and therefore what you own and the company ownes are two seperate things (which is how your assests are protected in the cases of bankruptcy or court cases). This does mean you cant just "dip into" the company funds if your a bit short (though a director is allowed a £4000 interest free loan from the company for the duration of his employment) - on the other hand it is always best business practice to account for "every penny" and not dip into company money when you want a new TV.

As a limited company you do have to submit annual reports and are subject to potential audit. It has been fairly recently introduced however that companies with profits below a certain margin do not need to submit such extensive reports nor have them audited fully.

As a rule of thumb it is generally not considered necessary for a sole trader or partnership which is earning less than £40,000 profit per person to incorporate but I have known several people who have decided to go for the "peace of mind" of a limited company as a startup (particularly if they have high startup costs or their plans will result in high supplier/ contractor costs)

 

[multilingual]

Whilst it is true that you couls pay yourself a low wage and then take out money as tax free dividends, you need to be careful so as not to be too blatant. For example, I know of a guy who did just that; he went Ltd, paid himself about 5K as a wage and took out 30K in dividends. The tax man said that he was not paying himself a representative wage for his job description and that this was tax evasion, please pay up now, do not pass go, do not collect 200 pounds.

The other pitfall now is the husband and wife routine, where you can make your spouse a director and then let them also take out divs tax free. This is now being monitored by the Revenue and if your other half is not playing a full and active role in the business then they will clobber you for back tax.

Once our business went over 35K profit we incorporated for tax and security reasons. We pay ourselves a wage that is fair in the eyes of the tax man, then take the rest out in divs. If you are fair with them they will be fair with you in return. I can also get an allowance for loaning my car for company use: I charge the Ltd company for each mile I drive my car on company business, which is completely tax free also.

Corporation tax is 22% on company profit up to a threshold of about 200K (don't quote me, not exactly sure), where as any personal profit over about 38K will be subject to tax at 40%. You need to do the sums and see where you are.

JB

 

[JoyDivision]

So do you reckon with a web development business its best just to take out public liability insurance and go sole trader until I know the business is a sucess rather than just jump straight into a LTD company?

I am really confused at the moment and I have no money for accountants or anything like that.

My parents have been sole traders for 8 years now without any problems.

 

[c4l]

My Dad's an accountant and has said that he'll sort all this FOC for me - very lucky really!

Where's a good place to get a Ltd company from. Seems a lucrative market. Some want £59, others £200! Any ideas on a good place?

The 'dipping into the pot' thing isn't a problem. I wouldn't be doing anything like. At the moment, would just be a part time thing but would hopefully get to a stage where i could go full time and would make sure i was getting enough.

Can i, as a director, not increase and decrease my wages on a monthly basis?? I.e. near Christmas, pay like 20% of my annual wages, but less expensive months just 5%? This possible??

 

[DuaneJackson]

Where's a good place to get a Ltd company from?

http://www.quickformations.com/

I think some of the information in this thread is a little misleading, but I'm no expert myself.

I'd suggest you have have a chat with http://www.alphalimited.co.uk/ He's a member of this forum Alpha a.k.a Alan. Although I'm sure he'll be along any moment now to throw in his tuppence on this thread.

 

[BMS]

C4L

Ltd company staus is the get out of jail card if anything goes wrong.

If your dad's an accountant then you have just saved £000's pounds in statutory accounts fees.

You can pay yourself a reasonable wage and if you don't need the wages put it back into the company as a loan to the company, that way the TAX & NI are sorted and you can take the money when you need it.

Yes talk to alpha

Try "ozzy" on this forum for company formation.

P.S. Corporation tax only applies to profits over £10,000.

 

[Alpha]

Hi C4l

I'm sorry I do not really have the time to sort out all the misleading pieces of information in this thread but it looks like nearly everyone has got at least one piece of advice wrong.

If your father is an accountant then I would have a good long talk with him first before you do anything.

The starting point irrespective of legal status is that you have a decent business plan. If you feel within the business plan that there is a realistic element of personal risk (and do not assume that insurance will cover it as insurance companies have plenty of 'get outs') then consider either an LLP or a Limited company so that personal assets are protected.

If you need specific advice that your father cannot give then by all means ask me.

 

[multilingual]

Maybe you could expand a little on what is wrong with the information I gave?

I have been in business for 14 years, as a sole trader and incorporated, and can't see anything fundamentally wrong with my postings.

Curious.

:?:

JB

 

[fastfences]

Hi,

Been considering a new idea.

I'm thinking of setting up a small company that does driveways and patios etc. The idea being that until i can afford to take staff on, I will sub-let the works. E.g. if a drive needs tarmacking, I will hire the staff to do the stone/base work, buy the stone, hire the roller equipment, buy the bulk tarmacadam and then hire in a team of surfacing contractors to do the work - plus a small overhead and profit %. This way, I would no that the work being done is of good quality as i would onlu use quality companies as my own sub-contractors.

Firstly, is this a good idea or not?

No.

Hi C4l

How will you be competitive if you're doing none of the work yourself? You will be be paying out left, right and centre for labour (generally the highest cost component) without A CONTRIBUTION FROM YOURSELF. When ACE DRRIVEWAY'S (or whoever) also quote the job, they will be way under you because they won't have your 'premium' added to the bottom line. If this was a good idea, everyone would be out quoting jobs and then getting a guy out of the local paper to do the work. Competition is fierce, not always pound related but you aren't offering anything to entice the customer to you.

Secondly - going limited. What are the costs involved with this? Is it worth doing? From what i've heard, I believe it would be. If for example, I built a driveway and it 'went wrong' for whatever reason, wouldn't want someone trying to take away my house and car etc!

One doesn't usually hide behing the structure of a limited company to evade responsibilities. If a driveway 'went wrong' (after being done by sub-contractors who you knew were doing a good job) why would you not just offer some reasonable customer service (and moral responsibility) and rectify the problem?

What do we all think of my grand ideas??

Crap. Sorry, just saying it as it is. It is admirable to focus on doing something for yourself, but I think a trip back to the drawing board will be worthwhile.

Cheers and kind regards, Nigel[/quote]

 

[c4l]

Thanks for the advice so far everyone - much appreciated.

Nigel / Fastfences - problem is at present i don't have the labour force to do the surfacing works. Obvious answer would therefore be - then don't do it - but i know a lot people who can do it - and cheaper for me as they know me.

My idea really is the basic idea of getting into carrying out groundworks. As groundworks can be so labour and plant intensive, i've calculated that i'd need around £70k to get started and at 23, this is some going! This is also not based on luxuries - i've not given myself the Audi A3 that i'd like as a company car, I've not bought 3 brand new Transit vans - this is based on a 5 year old JCB, 2 x 4 year old Citroen Berlingos, no new PC - this one i'm on now - no fancy freebie mugs etc for customers.

My main selling point, or so I'm thinking at present is that I will do a quality job. You see these rogue trader programmes where they lay a 'hamburgers thickness' of tarmac and so on. Also, a few years back, before i got into the construction industry, my parents had their drive re-done. Was paving stones this time - something i'd consider too - the guy charged £1200 and was by far the cheapest. Got what we paid for though - not a great job - and didn't finish it. Couldn't get hold of him later on to finish it off - left a load of decent tools too that we still have. I've worked out that i could do this work for around £700 (like-for-like, apples for apples), and it would be a good job, finished. I could stick £200 or so on for me after all labour and plant was paid for and both myself and the customer would be quids in!

Also, I will not need any capital upfront to do this work - it will give me scope to build up to my groundworks idea. Even if I only make £200 per driveway for myself - it all adds up and down the line, this will be look good on a business plan when i go to my bank manager with begging bowl.

Nigel/fast fences - these are not necessarily points to be put in your direction - just want to clarifty that - these are 'todays ideas' about the whole thing. Thanks for your criticism and honesty, good to hear an opinion from within the industry and i know what you're saying - we try to compete at work with smaller companies who don't sub-let and it's a nightmare. My selling point would be quality though and sales would come through recommendations and a good marketing plan - something i think that smaller builders fail to produce.

 

[Alpha]

Multilingual

Now I did say nearly everyone so that did not neccessarily mean you but

Whilst it is true that you couls pay yourself a low wage and then take out money as tax free dividends, you need to be careful so as not to be too blatant. For example, I know of a guy who did just that; he went Ltd, paid himself about 5K as a wage and took out 30K in dividends. The tax man said that he was not paying himself a representative wage for his job description and that this was tax evasion

If this happened it was not because he paid £5k in wages and £30k in dividends as this is perfectly legal in current UK tax law. It may however be that he did not follow correct procedures (relevant minutes and dividend vouchers) and therefore revenue classed it all as salary.

The other pitfall now is the husband and wife routine, where you can make your spouse a director and then let them also take out divs tax free. This is now being monitored by the Revenue and if your other half is not playing a full and active role in the business then they will clobber you for back tax

This is not yet being monitored as the test case of Artic systems is still to be heard in the court of appeal(on 19th January I believe). The original hearing which was held before the commissioners did not actually follow correct procedures. The revenue will not actively look at any cases until after this hearing has clarified the situation(and even then it may still go to the European court if the case against the revenue is lost and sufficient funding can be found.
As an aside the settlements legislation also applies to partnerships not just limited companies.

Corporation tax is 22% on company profit up to a threshold of about 200K (don't quote me, not exactly sure)

Corporation tax is at 19% on profits between £10001 and £300000 with marginal relief on profits between £10001 and £50000.

Well, if you are Ltd, then it means that you will have to be an employee of that company. Therefore you have to do all the PAYE for yourself

It does not mean neccesarily that you have to do PAYE. If you pay below the NI threshold there is no requirement to run a PAYE scheme. Also you can of course be a shareholder only not a director in which case you are not an employee.

Also there are thousands of forms to fill in for Customs because they want to keep on top of you

Firstly if turnover is below £60000 the company does not need to register for VAT therefore no forms to fill in. Secondly if the company is registered for VAT there are very few forms to fill in therefore a slight exaggeration

From a tax point of view, it may work out slightly better depending on your profit forecast, but in my opinion, unless the income is significant enough to save you a wedge of tax then don't bother

From purely an annual tax point of view the limited company will be better
off than a sole trader/partnership on profits between approx. £25k and £300k at which point it is better not to be limited!

In your case, I would suggest that the set up and administration of a Ltd company for this new venture would be more costly and be more hassle than if you stayed as a sole trader and just took out some liability insurance to cover for shoddy work

See original post insurance companies can often have exclusions which means they will not cover the sole trader leaving their assets wide open.

You can't walk into the bank and withdraw cash because you need some new clothes because that money belongs to the company, you are just an employee)

Actually you can provided it is accounted for correctly through the directors loan account. A director is allowed to have a tax and interest free loan of up to £5000 from the company.

Of course its things like this that can increase your accountancy costs!!

As a rule of thumb it is generally not considered necessary for a sole trader or partnership which is earning less than £40,000 profit per person to incorporate

No such logical rule of thumb it is the reason behind incorporation that is important!

Is that enough to be going on with ??

I know some of the points made are pernickity but you did ask and that is what I'm required to do for my clients!!

 

[c4l]

Phew!! What a long post - cheers Alpha - great help!

 

[Enigma121]

This thread is of great value, answers a lot of our questions. Also confirmed our decision to go limited, as it's the best way to get liability insurance sorted.

We are running in the limited and not sole trader route. Costs of this aren't huge until you start making sizable profits.

Suggest that as this thread is useful to most smaller businesses it's made sticky...

 

[Alpha]

To be honest if people come up with questions that are of use to most businesses I will put the information up on my website as a reference point.

Normally it is easier to check my website first and if you cannot find the info (and I know the answer) I will provide it on here.

 

[multilingual]

The starting point for this type of venture should be these:

A) What is the acceptable going rate for tarmacing an average driveway?

B) Get the best sets of quotes you can from sub-contractors in the area.

C) Work out your own costs, such as insurance, phone bills, travelling expenses, etc.

Then calculate A - (B + C) = D

If D is an acceptable profit then you have the start of a business.

The major mistake would be to add up B and C and then stick a wedge on top for yourself. You will just price yourself out of the market.

Better to see what the market will pay, and then work back.

The other way of doing it, which is even better but much harder to achieve in practice, is to first work out what profit you want to make beforehand,

then calculate A - (D + C) = B

Where B is the most that you can afford to pay your sub-contractors to do the work.

:shock: 'you're having a larf mate!'

Best of luck.

JB

 

[multilingual]

Cheers Alpha,

I did say 'don't quote me' on the exact figures, which you did :wink:

Secondly, not all those points are mine!

and thirdly, I thought you didn't have time to go through all the mistakes!

Keep smiling

JB

 

[Alpha]

Yes I know but then some smart A*r! would ask me what other points were wrong.

Now here a game I still havent corrected all the incorrect points can anyone find the others





Only kidding

 

[c4l]

lol - cheers guys!

like your style multilingual - good plan, a+b = c etc !

 

[fastfences]

Hi again, C4L

The starting point for this type of venture should be these:

A) What is the acceptable going rate for tarmacing an average driveway?

B) Get the best sets of quotes you can from sub-contractors in the area.

C) Work out your own costs, such as insurance, phone bills, travelling expenses, etc.

JB

With respect to Multilingual's 14 years' business experience, I'd point out that THE starting point is to first establish demand for the product/service.

It's rather fruitless doing all the above if all you're going to get is a call to surface a 5 square yard drive - and then they ask for pensioners discount! Part of pre-business research is to walk the streets and paint a hypothesis to homes/businesses that may use your service, then find out if they would have the job done if the price was right.

What competition is in your area? Small guys, large corporations? You need something to outsmart them both. Business name is critical - a fact that will be endorsed by many on this forum. C4 drives doesn't have much of a ring, but 'Back in Black' with AC/DC blazing away on your CD creates an image that will be remembered. My alliteration with 'Fast Fences, First for fuss-free fencing' is a mouthful - but it is remembered. It's also backed up with a good sign written vehicle, with, what else but FFF numberplates. It's all an image - and we sell the image.

Finally, never view a quote as just a quote - it is a sales opportunity. Be on time and try to provide the quote on the spot. Not many do, so you'll have an edge. While the others are at home working out how many stones in a square yard :lol: you've provided the quote and may already have the 'go ahead.' I win many jobs like that.

Re Public Liability insurance, you can get it for around £150.
Cheers, Nigel

 

[BMS]

You missed my post Alpha !

 

[Alpha]

Ok Paul if you really insist

P.S. Corporation tax only applies to profits over £10,000.

Yes but.............If you pay dividends to shareholders who control the company i.e. a close company then there will be effectively corporation tax of 19% of the dividend to be paid.

OK

 

[multilingual]

Fair comments Nigel, but in order to establish A) you would need to talk to potential customers to find out the acceptable rate. How else can you get that figure? You would walk round the streets and knock on the doors of houses with new driveways and say that you like their drive, that you are thinking about having yours done, who did it for them and how much did it cost?

You can get an average price for an average driveway. You then go to houses with crap driveways and experiment with prices above and below the average to see what the market will pay. You also get a feel for the demand that way.

Then do the sums as per my previous posting.

Anyway, I was simply making a point about the margin so as not to price yourself out of the market.

The other point, which has not been addressed is VAT. If this business is not turning over enough money, he does not NEED to register for VAT. However, many of the sub-contractors will be registered so he will be paying out and extra 17.5% that he cannot claim back, which will really hit the margin hard.

Voluntary registration is the only way forward here.

Disclaimer: These are just opinions!!!!!

:evil:

JB

 

[BMS]

Alan

Bugger forgot about that one.

It's a fair cop.

 

[fastfences]

Hi C4l & Multi'

The other point, which has not been addressed is VAT. If this business is not turning over enough money, he does not NEED to register for VAT. However, many of the sub-contractors will be registered so he will be paying out and extra 17.5% that he cannot claim back, which will really hit the margin hard.
JB

Very true. Skinny margins, THEN someone's going to delay payment for, say 3 weeks, so you end up eating Tesco Baked Beans until you get paid!
Cheers, Nigel

 

[multilingual]

Tesco baked beans! What a luxury.

I had to eat grass for two years when my business was strapped for cash!

Never did moooo any harm!

JB

 

[fastfences]

Never did moooo any harm!

JB

Aha! Now I understand the 'multilingual' tag! :lol: :lol:

 

[Ozzy]

I've made this a sticky as it does cover quite a few points with some interesting comments, replies and posts.

 

[c4l]

Wow! My post got sticky!!

 

[Hayles]

Hi

As a complete novice here, can you please explain what a 'sticky' is....

Sorry for my ignorance, and I thank you!!

Hayles

 

[Ozzy]

It means this thread stays right at the top of this forum!

 

[Hayles]

Thank you Richard!

Hayles

 

[FDB]

Simon why would you need so many transits and berlingos? I'm confused...am I missing something here? Surely these are two completely different styles of vehicle? :?

 

[Admiral Collections]

Hi

Wouldn't this make your driveways/patio's expensive? I would check out how much your sub-contractors are going to be wanting off you, or are you planning on just paying them a weekly wage?


Nic :wink:

 

[bizguy]

A limited company is always the best option because you are intrinsically turn your business into a separate, corporate entity. A limited company transfers any liability from you as a business owner to your company instead, thus offering you some level of protection in case anything happens. A good businessman would always think about all eventualities and a limited company is his best protection from the uncertainties of the future. Of course, with a limited company you are going to have to bring in more people at the management level, which is a cause for worry for business owners who do not want to share any decision-making powers.

 

[Shelley]

Hi all happy new year.

All this ltd bis doesnt make much sense to me, but after being ltd for 4 years, i have been advised to go back sole trader.

Why would this be??? Im not very clued up on all this.