Limited or Sole Trader? Help!

[TopTurtle]

Hi Everyone,

Having recently lost my job I have decided to go self employed (as in set up a one man band and trade alone).

I will be working I the field of testing an inspection of pressure systems which is related to what I was doing previously.

Since most of my clients would be Limited Compnaies, who are VAT Registered I initially thought it a ‘no-brainer’ to set up a limited company that I would work for as sole director and employee.

Whilst looking into matters a bit further, such things as address details being freely available led me to investigate using a ‘registered address service’ and then on to using an accountants address instead.
Once I realised the sort of fees an accountant would expect one to pay for ayears worth of accountancy advice and services (c.£1200) I must admit it put me off going LTD at all somewhat.

This is due to the fact I am forced to start this venture with very limited funds, and buying equipment for my work will drain the bank. I have already had to shell out on a car and insurance.

I may have the wrong end of the stick, but would it be possible to avoid any accountancy fees by doing my own book keeping for the first 6-8 months and then find an accountant in advance of filing my first years accounts?

Alternately I am toying with the idea of starting out as a sole trader, and then incorporating later if it takes off.

My main concern is the liabilities I would incur for this route to market, as dealing with high pressure systems could leave me open to comebacks if anything were to happen post my inspection work!

All my gut feelings say LTD is the way to go, but the doubting Thomas in me feels I may shell out a load of money and spend a lot of time sorting things out, only for the business to be underwhelming.

Regarding VAT, I would have to spend a few thousand on equipment to begin with so that would be nice to have the VAT back, but ongoing my purchase would be minimal, as I’d be performing a service rather than selling a product.

Would I be better off just pricing myself the same as my ‘ex VAT’ price to be competitive and not collecting revenue for the government, or does the VAT Registered status make it worth the grief?

Sorry for the lengthy first post, but I haven’t found the answers I need elsewhere.

 

[g]

Operating through a ltd should provide financial and other advantages over s/employed.

For 'comebacks', it's better to get appropriate liability insurance (which is sensible, and will likely be required by some clients) rather than rely on the protection of a ltd company.

Your accounts are likely to be relatively straightforward, for which you ought to be able to handle much of the book-keeping. And accountant fees needn't cost the £1200 you suggest (an amount which ought to be less than the advantage of using a ltd).

It's likely, that to provide a reasonable income, your turnover will be sufficiently high for vat-registration to be compulsory.

Useful links include:

• https://www.gov.uk/government/organisations/companies-house
• https://www.theformationscompany.com (their 'e-formation' package is good and inexpensive).
  

 

[Scalloway]

If you are just buying and selling stuff and providing services then VAT should be pretty simple. You just need a bookkeeping system that you can keep up to date. Most online and desk top software will allow you to file VAT returns at the click of a button.

If you are worried about liability check what insurance cover is available. You should have public liability insurance before you start up in any case.

 

[TopTurtle]

Thank you, could you recommend a software package that would give me these features?

 

[TopTurtle]

Hello g,

Thanks for that advice. I will be looking into PL insurance etc in due course. I was thinking in terms of an accidental death by explosion on a system which I had declared safe prior. In that instance the deceased’s family may sue me once the company had passed the buck my way, no?

In that instance the Limited Liability May percent me losing my house, or st lest that’s the way I viewed it.

 

[Mr D]

Yes you can run a year before worrying about accountant. For limited companies you have to submit accounts within 9 months of the year end.

 

[g]

In that instance the deceased’s family may sue me once the company had passed the buck my way, no?
In that instance the Limited Liability May percent me losing my house, or st lest that’s the way I viewed it.

As mentioned, rather than rely on the ltd for 'protection', the sane decision is to get appropriate insurance (which some clients will wisely insist you hold) - and thus be covered for various eventualities.

 

[TopTurtle]

For what you’re saying ‘g’, the limited element doesn’t offer the protection I fear I might (hope fully won’t!!) need.

So I might be better off ‘sole trading’ to begin with, as the poll suggests.

Properly insured, registered as sole trader, I should be good to go with very little agro and set up expense, no?

 

[TopTurtle]

P.s . Excuse the spelling mistakes, my iPad likes to change what I type for time to time.

 

[TopTurtle]

From* lol.

 

[Mr D]

For what you’re saying ‘g’, the limited element doesn’t offer the protection I fear I might (hope fully won’t!!) need.

So I might be better off ‘sole trading’ to begin with, as the poll suggests.

Properly insured, registered as sole trader, I should be good to go with very little agro and set up expense, no?

The same protection properly insured business have whether sole trader or limited?
I know the cost to set up a limited company is higher than sole trader but its not that much. Its a takeaway.

 

[g]

For what you’re saying ‘g’, the limited element doesn’t offer the protection I fear I might (hope fully won’t!!) need.

So I might be better off ‘sole trading’ to begin with, as the poll suggests.

Properly insured, registered as sole trader, I should be good to go with very little agro and set up expense, no?

The ltd will offer additional protection, but insurance is wise... consider things from a viewpoint of decency - make provision for clients to be fairly compensated through your potential actions, rather than simply protecting yourself.

The set-up time/costs of a ltd are minimal - less than an hour and a fiver. Ongoing, in your outlined scenario, there's little difference in complexity (hence time and cost) of ltd compared with s/emp.

 

[TopTurtle]

Thanks for your input ‘g’ and ‘Mr D’.

I got the impression the additional costs and complexity I was associating with a Limited Company would be in terms of onerous accounting and administrative responsibilities. I am not bothered one jot about the incorporation costs or time.

I was planning to use a Registered Address service to protect my privacy, with mail collection, adding about £250 per year.

I wasn’t unaware of my responsibilities to protect my customers and trade in a decent and ethical fashion, however the thought of losing my house following a freak event for which I’m blamed is worrying to say the least!

So you guys basically advise me to incorporate and suck up the extra administrative time and additional costs?

 

[Mr D]

Yes there are ongoing costs, use an accountant rather than simply do the paperwork yourself to submit financial data to authorities.
The offset is - an accountant can be worth considerably more than you pay them.

I cannot say limited is more complex than sole trader. Not at my level.
Maybe the much bigger or simpler organisations will be able to see a difference.

 

[g]

So you guys basically advise me to incorporate and suck up the extra administrative time and additional costs?

Yes - and don't forget that despite those additional costs, because of the likely/potential reduction in tax/NIC due, you should overall be financially better-off.

 

[TopTurtle]

I did check based on my expected first year turnover which I’d imagine is going to be quite low, and there wasn’t anything in it to speak of.

I can get PL and Professional Indemnity insurance for about £250. Would this, combined with Sole Trader status be a good way to get started? Two people voted for the Sole Trader route (out of two votes) but all the advice seems to lean towards LTD.

Still can’t decide what’s best.

 

[g]

I did check based on my expected first year turnover which I’d imagine is going to be quite low, and there wasn’t anything in it to speak of.

I can get PL and Professional Indemnity insurance for about £250. Would this, combined with Sole Trader status be a good way to get started? Two people voted for the Sole Trader route (out of two votes) but all the advice seems to lean towards LTD.

Still can’t decide what’s best.

If you think ahead, to further years - in which income will likely be higher - you might consider it wise to incorporate now, and thus subsequently not have to do it later when perhaps you've less time.

The insurances are sensible, whether s/t or ltd.

Advice leans toward ltd for the very good reasons of likely limited liability and reduced tax/nic.

 

[Scalloway]

I voted for sole trader because until you get going it is difficult to be sure things will work out. If you are a sole trader and it doesn't work then all you do is note your income and expenditure and pay the applicable tax. If expenditure exceeds income you can set the loss against other income that year.

If you go limited then you will need an accountant to prepare your accounts and tax return.

But at the end of the day it is up to you to weigh up the advice you have been given and go with what you think is best.

 

[TopTurtle]

Lol, there we go, two answers within a short space of time both telling me to do different things, and I agree with BOTH of you!


The whole prospect of the business failing and the incumbent mess of trying to wind it down, dissolve and file returns as opposed to just do a self assessment is sticking in my craw a bit, but I would like the protection as you say, of limited status.

I guess unless someone else can strike a definitive blow one way or the other I’ll have to bite the bullet and ‘just do it’ one way or the other.

 

[Mr D]

Having lost a limited business I can agree about the protection. Was hard to shut it down, far more stressful than when shutting down sole trading / partnerships. A lot less expensive than it would have been if I'd been a sole trader. All the debts would have remained mine, though equally unpayable.

 

[TopTurtle]

Having lost a limited business I can agree about the protection. Was hard to shut it down, far more stressful than when shutting down sole trading / partnerships. A lot less expensive than it would have been if I'd been a sole trader. All the debts would have remained mine, though equally unpayable.

Since I intend to only charge for services, and after purchasing my ‘tools’ there will be no debt ongoing (or suppliers), would the limited route still be as attractive?

 

[TopTurtle]

P.s to the accountant who contacted me early on in my quest for help, sorry I haven’t replied yet. I can’t find out how to answer you in the ‘conversation’ field.

 

[Mr D]

Since I intend to only charge for services, and after purchasing my ‘tools’ there will be no debt ongoing (or suppliers), would the limited route still be as attractive?

You may not plan for debt. Later you may well end up with tax debts.
The insolvency forums have plenty of companies who owe HMRC considerable sums at some point even if don't owe others.

 

[TopTurtle]

You may not plan for debt. Later you may well end up with tax debts.
The insolvency forums have plenty of companies who owe HMRC considerable sums at some point even if don't owe others.

Fair comment, but surely if I kept back what was owed, this wouldn’t be an issue?

Surely tax debts indicate profit, so the tax element of the profit should be ‘ off limits ‘ as far as expenditure goes?

Sole Trader, with a savings account to cover Income Tax and NI taken from the main bank account looks attractive, would you not say?

 

[Mr D]

Fair comment, but surely if I kept back what was owed, this wouldn’t be an issue?

Surely tax debts indicate profit, so the tax element of the profit should be ‘ off limits ‘ as far as expenditure goes?

Sole Trader, with a savings account to cover Income Tax and NI taken from the main bank account looks attractive, would you not say?

Yes people start out with that intention.
Then a quiet period happens / low order rate / illness etc and business income is not enough to pay bills.
That's when people tend to tap into money put by in order to keep the business going rather than liquidate at that point.

You can put money aside as sole trader or limited company. Just a good year with sole trader your income is the profit so you can end up paying higher taxes than you choose.

 

[g]

As 'Mr D' is making excellent points, rather than add anything I'll 'give him a lightbulb' and go to bed.

Of course, an alternative to s/t or ltd is to start a co-operative (which can quite quickly get complex).

 

[TODonnell]

We offer Registered Office addresses in London, principally. See my signature.

The only negative for me about being a sole trader is the personal legal liability if something goes wrong. But maybe liability insurance could cover that?

Annual returns for limited companies are a proper chore. If you are a small biz with simple income and expenditure, DIY might be possible, if you are educated about what accounting terms mean.