Partnership or Limited?

[Daren Halfpenny]

I run a small design business that has been operating since 1995. Initially I was a one man band until around 5 years ago, when my accountant suggested the my wife and myself were set up my business as a partnership. It was explained that the biggest advantage was that both our tax allowances could be channeled into the business, therefore doubling our business' pre-tax liabilities. Around three years ago, we decided to branch into wedding stationery on top of my servicing of a regular client base. My wife concentrated on running that part. We branded it and promote it as its own entity, although it's just a 'trading as' business within our business partnership. Our accountant presents both individual and partnership tax returns at the end of the financial year. We are now switching over to a new accountant and they have suggested we go Limited. Now my accounting skills go as far as counting the money in and counting it out again and that's it!! The accountant gets a list of money paid by customers and how much we have spent on items. Magic then happens and we're taxed accordingly. We are by no means a big fish - for the last three years, we've had no tax liability whatsoever - but this year we might see an increase that will mean that some tax will need to be paid. Although this is going to be explained to me by the new accountant, I want to try to get ahead of the game to find out in advance what is going to be really beneficial to me. It's not so much the liability issues that I'm concerned about, more the tax efficiency. Another thing that bothers me is that I apparently have to come up with a single identity in terms of a legitimate company name. Both our 'companies' are well branded with names suited to their workflows. I don't want to lose any of the business' identity - so much so, this could almost be the clincher as far as deciding to go for it or not is concerned. I've tried researching this and I keep getting bogged down. I'm after advice in the form of short sentences with little words in which make sense to me (I have epilepsy which means I get very easily distracted!). Your thoughts and advice would be very warmly greeted. Thanks in advance.

 

[Scalloway]

You can keep the existing names as trading names of the new company.

You can save money on National Insurance if you operate through a limited company - if the company makes a profit you pay the shareholders a dividend.

 

[Bob]

From what you say, bookkeeping isn't your strong point. The requirements of a limited company are more onerous from both a record keeping and filing perspective.
The accountancy fees also tend to be higher.
The recent changes to dividend tax have reduced the savings that can be made through using a limited company particularly where profits are low.
You need to get your new accountant to show you exactly what the benefits will be to you of incorporating and what the additional costs will be

 

[BRIDGREGORY]

I have run my limited company for 17 years now and have often regretted being limited.

Many of the advantages that are talked about only apply under certain circumstances for instance no personal liability for loans and overdrafts as banks often want a personal Guarantee from a director or directors.

Without going into all the details I would say don't go limited unless you are certain that you have a valid and pressing reason to do it. It will only cost you more.