Switching from a LTD to a sole trader

Discussion in 'General Business Forum' started by Jenny Woollett, Aug 12, 2019.

  1. Jenny Woollett

    Jenny Woollett UKBF Newcomer Free Member

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    Hi all.

    I am the director and founder of music pr company based in Sussex. Recently I met with an accountant to talk me through all of the numbers and I am starting to panic. I only started this company in May and we are slowly building but I don't feel that I'm at the right point to be a limited company.

    I am need of some advice about switching from a limited company to a sole trader. At the moment, it's only me running this business but I do have several sub contractors that help me with some parts of the business.

    Will this affect my business negatively? Is this the right move at the moment? Will people trust a music pr company that is run by a sole trader?

    Any advice or suggestions would be greatly appreciated.

    Thank You
     
    Posted: Aug 12, 2019 By: Jenny Woollett Member since: Aug 12, 2019
    #1
  2. JEREMY HAWKE

    JEREMY HAWKE UKBF Legend Full Member

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    No it wont effect your business I scaled down from a large ltd company to a asole trader years ago and We are supplying large water companies and private medical companies and the NHS

    People on here will tell you that you need to be a LTD company to look profession but it is all a load of bunkem
     
    Posted: Aug 12, 2019 By: JEREMY HAWKE Member since: Mar 4, 2008
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  3. Newchodge

    Newchodge UKBF Big Shot Free Member

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    I don't think many people would care, or even notice! However, what figures has your accountant frightened you with? I would have thought that the only real additional expense would be accountants' fees!
     
    Posted: Aug 12, 2019 By: Newchodge Member since: Nov 8, 2012
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  4. Jenny Woollett

    Jenny Woollett UKBF Newcomer Free Member

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    I am very new to business, so the amount of corporation tax I will need to pay. Directors salary and confused about tax limits and other things. I was told that a directors salary would be £719 a month to be able to avoid some tax and then I could take the rest out as a shareholder. So confusing and don't know if this is accurate.
     
    Posted: Aug 12, 2019 By: Jenny Woollett Member since: Aug 12, 2019
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  5. Jenny Woollett

    Jenny Woollett UKBF Newcomer Free Member

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    Thanks for your reply. It's reassuring that you are doing well as a sole trader. I rushed into registering my business as a limited company because this is what I thought I had to do. Little information out there for new business owners.
     
    Posted: Aug 12, 2019 By: Jenny Woollett Member since: Aug 12, 2019
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  6. Newchodge

    Newchodge UKBF Big Shot Free Member

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    I suggest that you need to ask your accountant to explain things again. You really should not have been left confused by these issues - the accountant's job is to explain clearly.
     
    Posted: Aug 12, 2019 By: Newchodge Member since: Nov 8, 2012
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  7. mattk

    mattk UKBF Newcomer Free Member

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    You need to ask your accountant to write down for the the pros and cons, including figures, of both scanarios. That is what you pay your accounts to do.

    At the end of the day, running a limited companies isn't materially more complex than being a sole trader. As @Newchodge says, you will need to pay some fees to your accountant for prepareing your accounts, but you may also choose to do that as a sole trader.

    As for taking £179 a month salary, that is a very aggressive tax avoidance move and you can take as much salary as you like if you are not too fussed about avoiding tax.
     
    Posted: Aug 12, 2019 By: mattk Member since: Dec 5, 2005
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  8. Mr D

    Mr D UKBF Legend Free Member

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    That presumably avoids NI. Tax allowance for someone without other income would be over a grand a month.
    Dividends the first 2 grand would be tax free, its a separate allowance than your personal tax allowance used in PAYE.

    Self employed your personal tax allowance on profits is the same as if you were employed. The NI is different and any profits are your income so get high enough profits and you could be paying higher taxes.
     
    Posted: Aug 12, 2019 By: Mr D Member since: Feb 12, 2017
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  9. STDFR33

    STDFR33 UKBF Big Shot Free Member

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    Whether you operate as a sole trader or limited company, you will have to pay some form of tax.

    As a sole trader you will pay class 2 NIC, class 4 NIC and income tax.

    As a limited company, the company will pay corporation tax on any profits. You will pay income tax based on the salary / dividends you receive.

    The salary you take from the company will reduce the profits of the company, and therefore reduce the amount of corporation tax it pays.

    Depending on your expected profits, it may be more beneficial from a tax perspective to operate as a limited company.

    If you intend to grow quickly, then it might be worth being a limited company from the outset to avoid disruption later.

    Don't forget as a limited company, it will need its own bank account, i.e. not in your name personally.

    If your accountant has left you worried, they haven't done their job. Either go back for a better explanation or choose a different accountant that you can work with.
     
    Posted: Aug 12, 2019 By: STDFR33 Member since: Aug 7, 2016
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  10. Jenny Woollett

    Jenny Woollett UKBF Newcomer Free Member

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    I'm very aware that I will have to pay tax of some kind. I don't have an issue with. I'm just worried that I am a start up a business that doesn't have a massive turn over at the moment. Is it even worth being a limited company at the moment. I envision switching back to a limited company when I, for example, am ready to take on a few full time employees but I won't be at that point for a while.
     
    Posted: Aug 12, 2019 By: Jenny Woollett Member since: Aug 12, 2019
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  11. STDFR33

    STDFR33 UKBF Big Shot Free Member

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    Who knows?

    We have no facts to give any sensible advice. This is something your accountant should have been advising you on prior to incorporating.

    You need to go back to your accountant giving them as much information as possible to enable them to give you some sound advice. If that advice isn't forthcoming, then you need another accountant.
     
    Posted: Aug 12, 2019 By: STDFR33 Member since: Aug 7, 2016
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  12. Mr D

    Mr D UKBF Legend Free Member

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    You can be a sole trader and have staff. Again them as an expense for wages etc reduces your profits that can be taxed.

    Besides affecting tax depending what business type you choose, there are also the costs and benefits.

    Limited company I'd always say get an accountant to do accounts. Figure £500 minimum, often places charge a grand or more from what others have said and my own experience.
    Self employed you can easily do your own accounts and submit them online. Though you can get an accountant to do them and probably should once you get busy - time saved means you can focus on business more.

    Limited company the debts belong to the company unless you sign a personal guarantee (typically borrowing or leases). Business goes under it does not affect your personal assets.
    Self employment - the debts all belong to you, business goes under you still get to pay them.
     
    Posted: Aug 12, 2019 By: Mr D Member since: Feb 12, 2017
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  13. UKSBD

    UKSBD Not a real duck Staff Member

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    What do you see as the disadvantages of a limited company?
     
    Posted: Aug 12, 2019 By: UKSBD Member since: Dec 30, 2005
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  14. Jenny Woollett

    Jenny Woollett UKBF Newcomer Free Member

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    I feel pressure to make a certain amount per month. I don't feel like I'm a big enough company to be a limited company just yet. High accountant fees for everything I need to file. I don't have any employees yet so do I even need to be a limited company and so on...
     
    Posted: Aug 12, 2019 By: Jenny Woollett Member since: Aug 12, 2019
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  15. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

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    @Jenny Woollett can I ask what made you trade via a limited company initially?

    To answer your questions -

    Will this affect my business negatively? - its unlikely but without more details on what you do I cant answer that

    Is this the right move at the moment? - without further details from an accounting and tax perspective I cant answer that

    Will people trust a music pr company that is run by a sole trader? - I cant see why not

    I really wouldnt be in a hurry to transfer the business to a sole trade. You've got the company in place now - make an informed decision with proper professional help.

    Running a limited company really isnt hugely different to a sole trade business if you have a good accountant helping you.
     
    Posted: Aug 12, 2019 By: MyAccountantOnline Member since: Sep 24, 2008
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  16. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

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    How much are the accountancy fees you have been quoted?
     
    Posted: Aug 12, 2019 By: MyAccountantOnline Member since: Sep 24, 2008
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  17. justintime

    justintime UKBF Regular Free Member

    500 66
    Hi Jenny. Other than accountancy fees, which are higher for Ltd Companies (and I wouldn't want to be paying more than a grand (£20 a week) if your accounts are relatively simple) there isn't an awful lot of difference other than extra compliance, which your accountant can take care of.

    Based on you having no other income and making a profit of £20k a year before wages a sole trader would pay £1500 income tax plus £1180 National Insurance, so £2680.

    As a Ltd Co you would (based on what your accountant has advised) receive £8628 in salary and £11372 in dividends. The dividend tax would be £413 and you (strictly speaking the Company) would pay £2161 Corporation Tax which is £2574, so a very slight saving, but the higher the income the greater the saving.
     
    Posted: Aug 12, 2019 By: justintime Member since: Apr 12, 2009
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  18. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

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    If you become a sole trader remember you won't have the protection of the corporate veil anymore - if the business becomes insolvent you will be personally liable for all debts and could face personal insolvency...
     
    Posted: Aug 13, 2019 By: Lisa Thomas Member since: Apr 20, 2015
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  19. SteLacca

    SteLacca UKBF Ace Free Member

    1,395 271
    You've transposed your figures, it's £719 per month (i.e. at the Primary Threshold to maximise CT relief whilst gaining NI credits).

    As for "Very aggressive tax avoidance", I say rubbish. It is perfectly legitimate tax planning (and there's a world of difference between avoidance and planning). It is planning adopted by literally thousands of SMEs, has never been challenged by HMRC, and has never been portrayed as tax avoidance any more than, for example, topping up pension contributions in order to keep taxable income within the basic rate band.

    Please don't portray perfectly legitimate activity as being something undesirable.
     
    Posted: Aug 13, 2019 By: SteLacca Member since: Jun 16, 2016
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  20. Mr D

    Mr D UKBF Legend Free Member

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    Tax avoidance is legal. Someone doing very aggressive tax avoidance is doing the same as someone simply avoiding tax.
    I'm looking at an ISA on another screen. Tax avoidance of course.
     
    Posted: Aug 13, 2019 By: Mr D Member since: Feb 12, 2017
    #20