Should I switch to an LTD?

[BusinessForums]

Hi,

I’m self employed as a sole trader. I’m a freelance software engineer and my clients all reside outside of the EU.

During 2018-2019, my gross income was around £48,000.
During 2019-2020, it has risen to around £80,000 give or take a few.

The thing is, I don’t have an accountant. I have nearly no business expenses, only around £1,000 a year.

I’d like to switch to an LTD to save myself some money. Is this something I could do and manage myself easily, or is an accountant a must for an LTD? As I said, I only have a single expense and that’s my business internet. I don’t have to advertise or manage any hardware, all my clients come to me. I work from home, I don’t pay for power or any accommodation costs. I do not travel for work.

If I were to switch to an LTD, when would be the right time to do this? I won’t be receiving any income for a couple of weeks when I start with my new client, which should hopefully line up with the new tax year. Saying this, I don’t expect to be making £80,000 either - maybe £50,000 to £60,000. It depends how the year goes.

I only live in a “small” town, not any accountants around me. It’s also difficult to find one given the current virus outbreak. Is using an online service like crunch worth my money? I would rather do this to be honest as I can manage my finances without having to call up / visit my accountant.

Also, I’ve recently read about the £2500/80% being award to the self employed. Would I be eligible for this as it’s going off the 2018-2019 taxes, or would this be sceptical to do due to my higher income this year?

Seeing as my income will drop “significantly” this year, should I expect a knock on the door from HMRC? I’m assuming I will, but will this still be the case if I switch from self employed to LTD?

Any advice I could be given would be great. Thank you.

 

[Mr D]

For limited company accounts an accountant is recommended. Company accounts are more expensive - multiple times have seen figures of 1000 plus for a year.
Some are cheaper.


Can be done online / on the phone. These days unless you need a sit down meeting with them they don't have to be near you.

HMRC do random checks and may if concerned get in touch, otherwise just expect to carry on. If they do check on you then you can prove details.

 

[BusinessForums]

For limited company accounts an accountant is recommended. Company accounts are more expensive - multiple times have seen figures of 1000 plus for a year.
Some are cheaper.


Can be done online / on the phone. These days unless you need a sit down meeting with them they don't have to be near you.

HMRC do random checks and may if concerned get in touch, otherwise just expect to carry on. If they do check on you then you can prove details.

Thanks for the reply. Crunch was quoting around £1,300-1,400 annually, but if it saves me money then it’s worth it.

I was expecting to need an accountant, thanks for confirming.

I’ll have to do some more research as to whether or not it will save me more than what the accountant fees will be.

Also re: random checks, gotcha. Wasn’t sure if it would be a hassle to deal with if I don’t have accountant, I guess not though.

 

[Clinton]

I’ll have to do some more research as to whether or not it will save me more than what the accountant fees will be.

That's not the right calculation. It's myopic, it's naive, it's foolish.

If you're earning that kind of money, get a frigging accountant and pay them well!

They may save you tax, or not, and it may be more than you're paying them, or not, but it's still a good idea to have an accountant on your side.

Last week I spoke with someone who, like you, "saved" money on an accountant over the last few years. He now wants to sell his business and I've discovered a hole he's got to fix. That's going to involve him paying HMRC circa £50K in back tax and fines! And till he fixes that nobody is going to buy his business.

I'm an accountant but I never worked in a practice, my life's been about buying and selling businesses, running them (and sometimes ruining them). But even I use an accountant to do my figures!

It's not difficult to find an accountant. They don't have to be in the same town! If you can't find a good accountant, have a look around the forum. Or drop me a PM and I'll introduce you to one or two.

 

[BusinessForums]

That's not the right calculation. It's myopic, it's naive, it's foolish.

If you're earning that kind of money, get a frigging accountant and pay them well!

They may save you tax, or not, and it may be more than you're paying them, or not, but it's still a good idea to have an accountant on your side.

Last week I spoke with someone who, like you, "saved" money on an accountant over the last few years. He now wants to sell his business and I've discovered a hole he's got to fix. That's going to involve him paying HMRC circa £50K in back tax and fines! And till he fixes that nobody is going to buy his business.

I'm an accountant but I never worked in a practice, my life's been about buying and selling businesses, running them (and sometimes ruining them). But even I use an accountant to do my figures!

Thanks for the info, I’ll likely get an accountant even if I remain self employed - was just wondering what the best option was. I’ll definitely take what you’ve said into mind

 

[MyAccountantOnline]

..
..
I’d like to switch to an LTD to save myself some money. Is this something I could do and manage myself easily, or is an accountant a must for an LTD? ....

It may sound like bias advise but I've been an accountant for many years looking after the tax and accounts for small businesses and my opinion is that a sole trader can generally look after their own tax affairs reasonably well if they are happy to spend sufficient time researching etc., they may miss some tax relief. However the accounts and tax affairs for a limited company really need to be dealt with by an accountant. It's so easy to make costly mistakes if you don't know what you are doing.

I run an online only practice as do lots of other accountants. My firms fees are on our website if you want to take a look.

 

[BusinessForums]

It may sound like bias advise but I've been an accountant for many years looking after the tax and accounts for small businesses and my opinion is that a sole trader can generally look after their own tax affairs reasonably well if they are happy to spend sufficient time researching etc., they may miss some tax relief. However the accounts and tax affairs for a limited company really need to be dealt with by an accountant. It's so easy to make costly mistakes if you don't know what you are doing.

I run an online only practice as do lots of other accountants. My firms fees are on our website if you want to take a look.

That was my general understanding too.

Thanks for the info. I'll take a look at your firm later today

 

[MyAccountantOnline]

...

Seeing as my income will drop “significantly” this year, should I expect a knock on the door from HMRC? I’m assuming I will, but will this still be the case if I switch from self employed to LTD?

.....

No, a reduction income doesn't necessarily mean HMRC will investigate your tax affairs. They commence enquiries into peoples tax affairs for many reasons.

 

[BusinessForums]

No, a reduction income doesn't necessarily mean HMRC will investigate your tax affairs. They commence enquiries into peoples tax affairs for many reasons.

Ah, okay. I had read elsewhere that they'll investigate for a reduction in income. I obviously have all my business history available if it were to happen, I just wasn't sure if it was a painful process to deal with or not.

 

[UK Contractor Accountant]

There is not going to be much in tax savings in being Ltd company at the £80K profit level after taking account of additional accountancy fees and other costs etc.

The tax savings will be something to consider if you are prepared to shelter profits within the company bank account rather than paying out as dividends.

Yes online accountants are the way to go in this crisis. There are a few of us on here you might want to contact for quotes.

 

[BusinessForums]

There is not going to be much in tax savings in being Ltd company at the £80K profit level after taking account of additional accountancy fees and other costs etc.

The tax savings will be something to consider if you are prepared to shelter profits within the company bank account rather than paying out as dividends.

Yes online accountants are the way to go in this crisis. There are a few of us on here you might want to contact for quotes.

I see, okay, thanks for the information.

By "sheltering profits", do you mean keeping the money in the business (i.e. the bank account) rather than paying out all money to myself?

Also, if I were to form an Ltd, when would you say is the right time to do it? Any reason to do it prior / after the new tax year starts, or does it not make any difference?

 

[Mr D]

That was my general understanding too.

Thanks for the info. I'll take a look at your firm later today

Can recommend Nicola (MyAccountantOnline). Quick service and good price.

I'm sure there are others who can recommend different accountants.

 

[UK Contractor Accountant]

By "sheltering profits", do you mean keeping the money in the business (i.e. the bank account) rather than paying out all money to myself?

yes correct. Build up a cash reserve in the company or alternatively contribute some to a pension scheme.

 

[BusinessForums]

yes correct. Build up a cash reserve in the company or alternatively contribute some to a pension scheme.

Interesting, thanks. I'm currently in discussion with a new contracting job for a fixed term, so that could be a good solution.

I'll contact a few of you over the next week or so to see what the best options are available for myself.

In terms of IR35, I believe that doesn't matter if I'm contracted for entities that operate outside of the UK, is that correct?

 

[STDFR33]

In terms of IR35, I believe that doesn't matter if I'm contracted for entities that operate outside of the UK, is that correct?

No.

 

[BusinessForums]

No.

Perfect, thank you.

 

[ecommerce84]

The vast majority of small businesses will be reporting a reduction in income this year so I wouldn’t give that aspect a second thought.

 

[BusinessForums]

The vast majority of small businesses will be reporting a reduction in income this year so I wouldn’t give that aspect a second thought.

Very good point, I hadn't even considered that!

 

[JEREMY HAWKE]

I would take this downtime to find a good accountant if they are still answering emails and talking on the phone .
As for going Limited I would wait until the autumn and see where we are then because it is going to be a very different economy for a good few years .

 

[adam thompson1981]

I wouldn't do anything yet.

As it stands you are entitled to claim 80% of your self employed profits.

Change to Ltd and get nothing

Wait till the corona kindly fecks off

 

[BusinessForums]

I wouldn't do anything yet.

As it stands you are entitled to claim 80% of your self employed profits.

Change to Ltd and get nothing

Wait till the corona kindly fecks off

I'm looking to start some contracted work in the next couple weeks, so I need to make a decision whether to stay as a sole trader or create an Ltd.

 

[BusinessForums]

Hi all,

Quick question. I'm not currently VAT registered, all my previous work has been to customers in the US.

My new client has their business located in Cyprus. I'm supplying software development. From what I've read up, they are to pay the VAT in their local country. Do I need to register for VAT in this case, even if I do not need to collect it?

It seems like this case would make an Ltd more useful - is that correct?

 

[genXYZ]

Also, I’ve recently read about the £2500/80% being award to the self employed. Would I be eligible for this as it’s going off the 2018-2019 taxes, or would this be sceptical to do due to my higher income this year?

Were you self employed for 2016-17, 2017-18 and 2018-19? Average your profits and if under £50k / year you should be eligible.

 

[UK Contractor Accountant]

Average your profits and if under £50k / year you should be eligible.

average what? accounting profits before disallowed expenses, accounting profits after disallowed expenses, taxable profits before capital allowances, taxable profits after capital allowances.

or any combination of the above?

Anybody know?

 

[BusinessForums]

Were you self employed for 2016-17, 2017-18 and 2018-19? Average your profits and if under £50k / year you should be eligible.

I was, yes.

average what? accounting profits before disallowed expenses, accounting profits after disallowed expenses, taxable profits before capital allowances, taxable profits after capital allowances.

or any combination of the above?

Anybody know?

They've published the official guidance, available on gov.uk. You can find the page under the Self Employment section of the site. Sorry, can't post links due to my post count.

It seems that they will reach out to businesses, you cannot apply.

Also, does anybody know realistically speaking how long it would take to setup a business? I'm doing a one-off job in a few days, after that I'm looking at potentially starting a 24 month contract. I'll just run the one-off job through my self employment. I'll reach out to the suggestions I received in this thread anyway.

 

[UK Contractor Accountant]

They've published the official guidance, available on gov.uk. You can find the page under the Self Employment section of the site. Sorry, can't post links due to my post count.

They haven't specified. Guidance only mentions 'trading profits' which is different to 'taxable profits'.

 

[BusinessForums]

They haven't specified. Guidance only mentions 'trading profits' which is different to 'taxable profits'.

Ah, I see. My apologies.

 

[Bigyin362]

Can't find any contact details for you ?

 

[Energise Accounting]

Just a quick note you should not be looking at setting up a Ltd company in order to save tax, The government can increase or reduce taxation at any time in most cases the amount of tax you save could be swallowed up in accountancy fees.

The main consideration for setting up a Ltd company should always be limited liability.

Sole traders can do there own accounts if they are disciplined but it can end up costing them more money than they save.

E.g A plumber gets a call out roughly 2 Fridays a month and he can charge £150 each time. He could end up loosing that income as he has to catch up on his bookkeeping.

The bottom line you can't do it all it will end up costing you money if you try.