Limited company or sole trader while remaining employed elsewhere?

[Richard McKee]

Hello,


I am in the process of setting up a side business, a small after hours DIY tool and equipment hire store from my home. I am employed and will retain this job. Both myself and my wife are 40% tax payers. I know I have to get an accountant but I am still on the lookout for one that is not too expensive (I live in Aberdeen where accountants are used to Oil & Gas accounts and day raters on >£1,000 / day so are very much on the high side).

I do not expect the business to turn over too much in the first year £10-£20K would be nice but you never know.

So here is the same old question everyone asks, a limited company or a sole trader? I have read so many posts and articles on-line but thought I’d ask here with more details about my personal circumstances / plan.


I am interested in what is best financially and also if there

I initially thought a limited company so as I do not put my house etc at risk. It’s not financial risk that I am afraid of as I will not be growing this with any money other than my own and will only purchase what I can afford. My concern is in case a customer gets injured / killed using a piece of equipment that they have rented from me, I want to be covered the best I can. Would a limited company have any better protection over a sole trader in this instance? The business will be fully insured as a tool hire business with £5mil liability. All tools and equipment will be fully inspected and maintained to the latest HSE and HAE code of practice and regulations and documented, contracts signed and written instructions given.

I would also like to know peoples thoughts on the best for financial gain for myself.

As I said I will be funding this myself, my maximum investment will be £50K depending on how well it takes off but I will not be investing this in one go, more as and when needed (Sole trader route easier?). If it’s a limited company I think it’s a little more complicated? I’d like to get this money back out as required (and if available) without being penalised, if a limited company would I then invest the money as directors loans?.


I appreciate your advice and look forward to your comments.


Thanks


Richard

 

[Richard McKee]

No one any advice?

 

[Scalloway]

As you are higher rate tax payers a limited company might be better as the company would only be taxed at 20 % and you would only pay tax on dividends if you paid them out.

Having a small share capital and putting the bulk of the money in as loan allows you to extract Funds tax free as loan repayment.

If you want a reasonably priced accountant in the Aberdeen area I would recommend Bon Accord Accountancy. I deal regularly with their Shetland office and find their charges are moderate.

http://www.bonaccordaccountancy.co.uk/

 

[jf-financial]

As Scalloway says, if you're both higher rate tax payers a limited company could work well as you'll pay corporation tax at 19% of taxable profits (17/18 rate) and you can take up to £5,000 of dividends each out of your company tax free under the dividend allowance, subject to there being sufficient retained profits (and assuming you don't already have dividend income from elsewhere).

Speak to an accountant to discuss your specific circumstances in detail though.