Sole Trade vs Ltd Company

[Mani_SB]

Hi All,

Seeking some advice on the best way to legally register my online brand in time for launch later this year.

At launch, my plan is to register myself as a sole trader and trade under the name of my brand. I feel with the the tax benefits this is a good way to retain as much revenue in the brand and to fund growth especially for the first 6-12 months. Clearly registering as a sole trader comes with its risks however with the plan to start small and nurture growth i think this should act as a good mitigate? After all I can go migrate to a ltd company with a day or so if it makes sense to do so.

Has anybody followed this approach? At what point did they make the decision to go from Sole Trader to Ltd Company?

Any general advice on this would be appreciated too.

Thanks in advance,
M

 

[japancool]

feel with the the tax benefits this is a good way to retain as much revenue in the brand and to fund growth especially for the first 6-12 months.

Tax benefits?

 

[Mani_SB]

Tax relieve allowance is far more than what it would for an ltd company and also not qualify for corporation tax.

 

[Mr D]

Tax relieve allowance is far more than what it would for an ltd company and also not qualify for corporation tax.

Tax is personal - and can go quite a bit higher than corporation tax does.

However your brand - you going to register it?

It's not uncommon for people to start out self employed then later when business can afford it and the benefits are more relevant to move to a limited company. Liability changes as well as taxation and income.
You and a self employed business are one. You and a limited company are different legal entities.

Some go for limited from day one due to liability, presentation or tax benefits.
For some, self employed income starts with immediate 20 or 40 percent tax rate on all profits. So they benefit tax wise from using limited company - though of course additional admin and usually more expensive accounts.

Ultimately it's down to the individual as to at what point the benefits and the costs are such that one option is better than the other.
If I was to start a new business tomorrow I would start a limited company. The benefits would far exceed the costs for me.

 

[japancool]

Tax relieve allowance is far more than what it would for an ltd company and also not qualify for corporation tax.

Well, depends on how much profit you make.

If your total income, including that from any other employment and profit from the sole tradership is more than around 10k, you will have to pay NI plus whatever rate of income tax you're on.

You can't "leave money in" a sole tradership. Any profit you make is considered income, on which you will pay tax, assuming you exceed the personal allowance and NI thresholds.

 

[Deleted member 335660]

Hi All,

Seeking some advice on the best way to legally register my online brand in time for launch later this year.

At launch, my plan is to register myself as a sole trader and trade under the name of my brand. I feel with the the tax benefits this is a good way to retain as much revenue in the brand and to fund growth especially for the first 6-12 months. Clearly registering as a sole trader comes with its risks however with the plan to start small and nurture growth i think this should act as a good mitigate? After all I can go migrate to a ltd company with a day or so if it makes sense to do so.

Has anybody followed this approach? At what point did they make the decision to go from Sole Trader to Ltd Company?

Any general advice on this would be appreciated too.

Thanks in advance,
M

There are three points to consider:

1) Who are your customers ?
2) What investment and risks are there?
3) Personal Tax Situation

When I started a computer systems company my customers were all businesses or local governments and they preferred you to be VAT registered and a limited company. Earlier in my career I was an Education Equipment Agent and sole trader was fine.

If you don’t need outside investors and the risks are limited then you could get away with sole trader.

You only pay Corporation Tax on profits the company makes and in first few years this could be marginal with development costs etc. Best to consult an accountant or work it out for yourself.

Minor point is if the brand is based on a name of the company as you may be limited at company’s house.

 

[WaveJumper]

All sound advice from those above it really would be worthwhile seeking out some advice from an accountant initial consultations are normally free but could save you a lot of heartache going forward even if a small costs was involved

 

[Mani_SB]

Thanks all for your advice and inputs - I've emailed my accountant and also consider what he advices.

At the moment I am leaning towards setting up a ltd company.

 

[Spreadsheet Accountant]

Here's a LTD v Self-employed taxes/nics comparison I knocked up a while ago:

It may be surprising reading.
Let me know any errors spotted.

Link to Spreadsheet in Google Docs and my article is here: https://adm-opinion.medium.com/limited-company-versus-self-employed

Anthony

 

[John Higgins]

I've gone down both routes in the past. Ltd Company has several benefits, but I'm not entirely sure how much liability it protects you from these days - one for a qualified lawyer to answer.

Self-employed is easier from an admin perspective and you can take out liability cover. Accountants fees should be cheaper as fewer returns.

Another point - do you have an exit strategy? You may have more chance of selling your business if there are several years of ltd company accounts.