Sole Trade -v- Limited Company

[AnthonyP]

In terms of financial advise, i would say that having a limited company does not ensure the best return to your investments due to the higher taxes that this type of company will have to pay, so it would win the sole trader for financial investments.

 

[StevensOnln1]

In terms of financial advise, i would say that having a limited company does not ensure the best return to your investments due to the higher taxes that this type of company will have to pay, so it would win the sole trader for financial investments.

What higher taxes are you referring to? Operating as a limited company is generally more tax efficient than a sole trader if you have substantial profits.

 

[john1989]

What higher taxes are you referring to? Operating as a limited company is generally more tax efficient than a sole trader if you have substantial profits.

None of the post made much sense to me.

Probably best to be taken with a large pinch of salt.

 

[daisy13]

Would be great if this thread Sole Trader v Ltd Co could be updated to take into account the recent 2016 budget changes (specifically re dividends and changes to Corp tax). Many thanks in advance.

 

[Bob]

@RPower @Dan Izzard ??????

 

[jf-financial]

Would be great if this thread Sole Trader v Ltd Co could be updated to take into account the recent 2016 budget changes (specifically re dividends and changes to Corp tax). Many thanks in advance.

Hi daisy13,

We have an updated article on the topic of sole trader vs limited company for 16/17 here

thanks
John

 

[AnnaDanishek]

It is very useful to know this. I'm setting a company and wasn't sure about the type of company I should choose!

 

[Bootleggeruk]

Still in the dark as to go down the sole trader route or limited company. I'm in the process of starting my own chauffeur business one man operation, and getting the vehicle on lease hire. Running the business from a spare bedroom in rented accommodation. Expecting to make around £30,000 pa before paying anything (Tax,NI and hire charges).
Was going down the route of Sole trader but Limited Company may give my clients a reason to use me, more professional etc.

Any thoughts?

 

[Scalloway]

I would suggest speaking to an accountant. One thing to note is that if you do go limited the lease would need to go in the limited company name.

 

[TODonnell]

What bothered me when I set up my own company (before I came to work for Registered Address) was that, as a sole trader, I might be sued by a client if a project went skew-whiff.

AFAIK, a sole trader can possibly lose his house, in that case, as he is the entity his clients are contracting with.

The other bit of received wisdom is that you should get an Ltd if your (income/profit?) is over £24k. However, good ole' HMRC is constantly changing its tactics to squeeze money from the working stiff, so up-to-date accountancy advice is crucial.

I don't recommend setting one up on a whim; the annual returns are a bore and a chore.

Knowing what I know now, if the niche isn't one likely to attract litigation, one should start as a sole trader, see if you have a profitable business, then change to LTD when it becomes essential.

Chauffeuring sounds like it could be a minefield, so ...

 

[David A]

I would suggest speaking to an accountant. One thing to note is that if you do go limited the lease would need to go in the limited company name.

But most landlords would want a personal guarantee before agreeing to rent to a limited company, so BootleggerUK could easily keep the lease in his name, and then charge the company for use of the vehicle.

 

[David A]

[post removed]

Hmmm ...

It's not really forum etiquette for a free member on the first day of joining to tout for business. For the good of your reputation, it's normally expected that you contribute to the general good first.

 

[Kalash]

I agree ! Thanks

 

[Taxed]

Is there an online LTD company tax calculator anywhere? That covers dividends, salaries, tax, etc?

Or is it too complicated to put into an online calculator?

If not, it might be helpful to help people get a rough idea of what might work best for them.

 

[Scalloway]

There used to be one or two as I recall but I can't find them now. I guess it is as much because there is very little tax advantage in going limited.

 

[SW-Auto-Tools]

been trying to decide myself if I should stay as sole trader or switch to limited after reading through the forum I don't think I would benefit from limited, however I am going to have to register for VAT, currently on cash basis accounting question is would I have to change from this or can you still be VAT registered and use a cash basis up to a certain amount of sales?

 

[Scalloway]

You can continue to use the cash basis until your turnover exceeds £166,000 per annum.

https://www.gov.uk/simpler-income-tax-cash-basis/who-can-use-cash-basis

 

[SW-Auto-Tools]

I had read that it just threw me as a few pages on it states -

'You can start to use cash basis if you’re VAT registered as long as your income is £83,000 or less during the tax year.'

Also sounds as tho it covers you up to £166,000 if you go over in your first year but if your going to be over the 83k the following year you would have to switch or am I reading it wrong?

 

[Scalloway]

From the link I quoted.

You can stay in the scheme up to a total business income of £166,000 per year.

I take it that it means as long as you do not exceed £166,000 in the year you can use the cash basis for as long as you want. If you go above £166,000 you can't go back to it until your income goes below £83,000.

 

[Steven Wood]

Going into the small restaurant business with my son (he has managed the restaurant for some years, but we are now purchasing said business). I am also a full time social worker (employed by my Local Authority) and will be maintaining this OR going independent as a social worker. With regards to tax purposes and my own personal circumstances (as briefly described above), I am totally lost as to whether the restaurant would best be set up as a partnership or Ltd co and also whether my proposed independent social work should be sole trader or Ltd co. The restaurant currently takes annual net profits between 40 to 45k. As an employed social worker I earn 39k annually. Were I to go independent with social work, I would be looking to earn 35 to 40k annually (but would leave my employed position). Any tips would be greatly appreciated?

 

[Scalloway]

I would never recommend a partnership for a business. As a partner you are jointly and severally liable for the debts of the partnership. The worst case scenario is that your son runs up a huge debt and does a bunk leaving you to pay it off.

So I would recommend a limited company for the restaurant and get a shareholders agreement drawn up by a solicitor.

As for the social work business being a sole trader may well work. Just make sure you have all the necessary insurance.

 

[Steven Wood]

Scalloway.... Thankyou

 

[DPM]

Hi all.

I am fairly new to doing my own accounts and have a query with tax.

I am doing work for another company (being sub contracted out) and when receiving my first payment the company deducted 20% tax from my money. My question is, shouldn't they pay the full invoice amount I ask for and leave it to me to deal with my companies tax?

 

[educnews]

Maybe not as important in Financial Services as Director guarantees mean that the legal protection afforded to directors in most other fields doesn't apply in FS, however having said that in accountancy terms as long as your accountant isn't charging a fortune because you've got "company accounts" the company route can save you quite a bit of money.

 

[Scalloway]

as long as your accountant isn't charging a fortune because you've got "company accounts" the company route can save you quite a bit of money.

Company accounts do cost more because they are a lot more complicated than sole trader accounts.

 

[Confusedly]

G'day. I'm trying to do some rough calculations of how much to put away each month to cover Corporation Tax and Personal Tax (to be paid on dividends).

There are two of us in the business who are 50% shareholders and directors. We both get 50% of the profits in dividends as well as a salary from the business (about £8000 to use personal allowance but still qualifying for state pension). Neither of us have any other income.

Sorry about the incorrect terminology - I hope that makes sense!

If we keep 20% of what comes into the business account each month aside, can that be used to pay the corporation tax and the personal tax on the dividends?

I've done some rough calculations which seems to suggest that the numbers would add up. Am I right?

edit: shucks, was going to post a link to an image of the numbers but can't until I have 30 posts! /a/WqicU

If so, after the Corporation Tax has been paid, can any money that's left in the business account be taken out to be used for personal tax payments for the two people in the business?

Hope this all makes sense! Thanks.

 

[STDFR33]

G'day. I'm trying to do some rough calculations of how much to put away each month to cover Corporation Tax and Personal Tax (to be paid on dividends).

There are two of us in the business who are 50% shareholders and directors. We both get 50% of the profits in dividends as well as a salary from the business (about £8000 to use personal allowance but still qualifying for state pension). Neither of us have any other income.

Sorry about the incorrect terminology - I hope that makes sense!

If we keep 20% of what comes into the business account each month aside, can that be used to pay the corporation tax and the personal tax on the dividends?

I've done some rough calculations which seems to suggest that the numbers would add up. Am I right?

edit: shucks, was going to post a link to an image of the numbers but can't until I have 30 posts! /a/WqicU

If so, after the Corporation Tax has been paid, can any money that's left in the business account be taken out to be used for personal tax payments for the two people in the business?

Hope this all makes sense! Thanks.

Money going on the bank account rarely reflect the company position.

To declare a dividend, you will need to draw up management account and ensure that the dividends do not exceed the retained earnings.

 

[Scalloway]

Personal tax must be paid by the person receiving the income, not the company.

 

[Confusedly]

Personal tax must be paid by the person receiving the income, not the company.

Thanks. What if the money was taken out of the account, into a personal account, then used to pay the person tax?

 

[STDFR33]

Thanks. What if the money was taken out of the account, into a personal account, then used to pay the person tax?

It would go to your directors loan account. An overdrawn DLA can have tax consequences.

 

[Samose123]

Would you move off-shore to avoid tax if your annual income exceeds 1 million pounds? To British Virgin Islands for example.

 

[STDFR33]

Would you move off-shore to avoid tax if your annual income exceeds 1 million pounds? To British Virgin Islands for example.

It depends.

Are you happy to physically move away?

 

[mollie]

Hi I wonder if I can get some opinions on this... Myself and my husband have a VAT limited company which has a gross turnover of over £150,000 .... (if i'm honest i don't understand the tax etc that goes with it) however we pay an accountants over £2500 a year so we leave it to them.

This is my question...We earn the money, put our tax away and spend the rest on getting rid of our mortgage, going on holiday, sending kids to Uni and generally enjoying life....this however has resulted in us taking too many dividends year after year and ending up with not only a corporation tax bill but two large personal tax bills, my accountant dosent really say a lot about this which I need to address however my thoughts are that we would be better changing to a LLP where we take what money we earn without incurring extra costs, the liability isn't an issue we don't owe and never have owed a penny to anyone from the business -we pay as we go so its more of us wanting to take what we want and pay the tax & Nics at the end of the year.

Would you all give me your opinions please ?? thanks in advance

 

[Scalloway]

Changing to an LLP would mean that you would have just personal tax bills as you will be personally taxed on the LLP profits.

 

[Chart Accountancy]

The personal tax bill will be much higher than the overall tax paid in corporation tax and tax on the dividends if you transfer to LLP. Partnership is tax neutral so partners are assessed on their profit allocation each tax year, there is no retained profit in the LLP as you could have with the ltd which allow you to keep funds in the business and receive later. You can look at options to reduce your tax with the ltd, you should discuss with your accountant if there are any tax saving options, for example paying into a pension scheme if you are not doing so already could help in paying less tax..

 

[yuzi87]

Hi I wonder if I can get some opinions on this... Myself and my husband have a VAT limited company which has a gross turnover of over £150,000 .... (if i'm honest i don't understand the tax etc that goes with it) however we pay an accountants over £2500 a year so we leave it to them.

This is my question...We earn the money, put our tax away and spend the rest on getting rid of our mortgage, going on holiday, sending kids to Uni and generally enjoying life....this however has resulted in us taking too many dividends year after year and ending up with not only a corporation tax bill but two large personal tax bills, my accountant dosent really say a lot about this which I need to address however my thoughts are that we would be better changing to a LLP where we take what money we earn without incurring extra costs, the liability isn't an issue we don't owe and never have owed a penny to anyone from the business -we pay as we go so its more of us wanting to take what we want and pay the tax & Nics at the end of the year.

Would you all give me your opinions please ?? thanks in advance

I would get a new accountant, my company turned over £250,000 I had 0 books no ledgers etc I just dumped my years paperwork and receipts at a well established accountants and it all got sorted for £800+vat secondly I would not want an accountant working for me who "doesn't say a lot"

 

[STDFR33]

I would get a new accountant, my company turned over £250,000 I had 0 books no ledgers etc I just dumped my years paperwork and receipts at a well established accountants and it all got sorted for £800+vat secondly I would not want an accountant working for me who "doesn't say a lot"

A good accountant will work with you, not for you.

 

[Scalloway]

When you register as an employer a free CD ROM is sent out and you receive automatic updates for budget changes etc. The CD ROM covers payroll, end of year forms etc

When did you register for payroll? I haven't seen that CD ROM in years!

 

[mymindmyright]

Just what I've been searching for

 

[Taxed]

I'm starting to wonder if I might be better off not having a LTD company and being self employed?

My main worry is the lower income on paper, for helping me with things like renting a house, or getting a mortgage.

I think I pay less tax with a LTD company but my personal income looks lower (due to LTD company paying corp. tax and expenses). Is this a reasonable concern?

Say the turnover for the year was £50,000.
£10,000 of expenses (bank fees, accountant, working from home, including £5,000 of sub-contractor costs)
Then about £5,000 of corporation tax.

That leaves £35,000 of money for me, with £8,000 of salary and £27,000 dividends.

So if wanted to rent or buy a house, I assume I could show an income of £35,000.

However, if I was self employed, could I show an income of £40,000 to the estate agents (for renting) (as I could include the £5,000 I didn't pay in corp tax.

Plus I'd have less expenses as accountant fees would be lower. And maybe I couldn't claim for things like use of home.

Am I right in thinking if I was self employed, income given for this purpose (mortage or renting) would be pre-tax, rather than after tax?

I probably pay less tax with a LTD company, but on paper I earn less which will/might cause problems with housing?

Or would an estate agent/mortgage person look at the pre-tax earnings of the LTD company?

Any thoughts or advice on this much appreciated. Thanks.