Which to opt for? SoleTrader vs Ltd

[Deleted member 158641]

Hi,

Have been trading for just over a month, well I say trading but I mean starting out, have been fairly successful, I wholesale phone accessories etc, also do freelance logo design (under another 'company banner') so have two seperate entities, whilst being a student at university.

The issue I am having is I think I want to start a business bank account so I can pretty much save my money, rather than getting it mixed up with my everyday expenditure so everything is a little more structured, but to do so (Will probably opt for the basic Barclays start up account) I need a company or sole trader status with HMRC.

Which should I opt for? Do not expect to make more than 20k per year, being a student as well. I understand that filling in tax return is pretty straight forward as a sole trader/self employed. Does this in any way shape or form affect my credit rating or anything, I am not looking to take any form of loan or overdraft.

Kind regards, thanks in advance.

 

[Deleted member 158641]

£20k per year in profit * just to clarify.

 

[arcon5]

Do you intend to open a shop ? Enter in to any long term agreements? Or anything that carries significant risk?

As ltd add 50-60£ per month for an accountant.

As a sole trader, it will only affect your credit report unless you default on any agreement with a company that reports to agencies. Unlikely a credit supplier will.

Do your current figures support your £20k forcast?
Would such an income affect your student loan elegibity?

 

[MyAccountantOnline]

Hi,

Have been trading for just over a month, well I say trading but I mean starting out, have been fairly successful, I wholesale phone accessories etc, also do freelance logo design (under another 'company banner') so have two seperate entities, whilst being a student at university.

The issue I am having is I think I want to start a business bank account so I can pretty much save my money, rather than getting it mixed up with my everyday expenditure so everything is a little more structured, but to do so (Will probably opt for the basic Barclays start up account) I need a company or sole trader status with HMRC.

Which should I opt for? Do not expect to make more than 20k per year, being a student as well. I understand that filling in tax return is pretty straight forward as a sole trader/self employed. Does this in any way shape or form affect my credit rating or anything, I am not looking to take any form of loan or overdraft.

Kind regards, thanks in advance.

As you are already trading you should have registered already with HMRC as a sole trader. http://www.hmrc.gov.uk/working/intro/selfemployed.htm#1

Moving forward it may be beneficial to operate via a limited company but it depends on many factors and you are best getting proper specific professional advice for that.

 

[altwebdesign]

You get more/better protection as a LTD company, e.g if the company goes bust, you lose what you put in and not your personal belongings...

check this out:
http://www.freelanceadvisor.co.uk/go-freelance-guide/limited-company-vs-sole-trader-which-is-best/

 

[Deleted member 158641]

Do you intend to open a shop ? Enter in to any long term agreements? Or anything that carries significant risk?

As ltd add 50-60£ per month for an accountant.

As a sole trader, it will only affect your credit report unless you default on any agreement with a company that reports to agencies. Unlikely a credit supplier will.

Do your current figures support your £20k forcast?
Would such an income affect your student loan elegibity?

Thanks for the reply, no plans to open a shop as I get my customers through the internet and word of mouth, not planning on getting into any long term agreements either, which would carry risk, all overheads are kept at a bare minimum as I operate from home. My current figures are supporting a £20k forecast, need to check if it does effect my student loan, in which I would prefer to shave the business down.

What would LTD offer me, I understand I can get a car under the benefit in kind scheme I think or claim per mile in terms of petrol as long as it is a business expense, this would be my only real need in terms of 'exploring' taxation. Out of interest as a side note however, having enough £ for a small buy to let almost, I would like this on my own name, therefore if i go ltd, and draw up accounts will the bank offer me a mortgage based on ltd credit rating, or myself?

 

[arcon5]

As Ltd the bank would probably have you sign a personal guarantee and credit search both you and the company. Expect them to look for 25%+ deposit though.

If you are sole director and shareholder then ltd or sole trader the money for the car is coming out of your pocket effectively. But claiming the mileague rate on a joint personal/business car can be done for whatever tradig style you choose.

As said though you are already trading and need to register as self employed for this period.. Registering late carries financial penalties!!!

My thoughts are that if a £20k income will affect your student loans then you could change to ltd and just accumulate the money in the company account until after you graduate when you can take it out as dividends. Or maybe during study time as a directors loan then draw dividend later to ready the directors loan - I don't think the loan would be classed as 'income' then - but could be completely wrong here

 

[SetupaCompany]

I would definitely suggest having a proper chat with an accountant so you can delve in to your personal situation a little deeper and get the right advice.

We do have a short article on some of the main benefits of becoming a limited company on our website that may be of interest: http://www.setupacompany.co.uk/benefits-of-registering-a-limited-company

If your main reason is just for the bank account then it probably isn't worth it - if keeping things separate is an issue you can always get a second personal account set up and only use it for the costs and income related to your sole trader business.

 

[aprilfloyd]

I would recommend starting as a LTD, do it properly from day one.

Also

1. It is a separate legal entity - liability is limited
2. You can easily sell it or part of it to raise finance
3. More credibility with customers and suppliers.
4. You will not regret it.
5. Register for VAT even if you are below threshold, start as you mean to go on

 

[Deleted member 158641]

I would recommend starting as a LTD, do it properly from day one.

Also

1. It is a separate legal entity - liability is limited
2. You can easily sell it or part of it to raise finance
3. More credibility with customers and suppliers.
4. You will not regret it.
5. Register for VAT even if you are below threshold, start as you mean to go on

Thank you, does everyone else agree with this, esspecially the rather daunting VAT aspect?....Or should I at least hit a £1k a month profit before so.

 

[SetupaCompany]

Thank you, does everyone else agree with this, esspecially the rather daunting VAT aspect?....Or should I at least hit a £1k a month profit before so.

If you are mostly dealing with other businesses (rather than end consumers) then registering for VAT now will look better and save you money as you can recover the VAT on purchases.

 

[Christine Hough]

Only register for VAT if your clients are registered. With minimal overheads, you will not be claiming much back. And it will mean that you have to give the VAT portion back to the government. You are well below the threshold of 77,000.

Probably VAT registration will be fine for the wholeselling, You will probably be paying VAT on stock you buy, and can claim that back, and your customers will be businesses who are registered for VAT and can claim back what you add on for VAT.

But for the logo design it is probably a different scene. If you are designing for start ups who are not registered for VAT then that is a real cost to them and you need to assess what the market will pay. If for example it will pay £120 and you are not VAT registered then you get to keep 120. If you are VAT registered then you only get to keep 100.
Meanwhile if your clients are not VAT registered it will cost them all of 120, but if they are they can claim back 20.

It seems like you have two different businesses which need different set ups here.

 

[Andrew46]

I would broadly agree with aprilfloyd's comments, except that the VAT question has nothing to do with being a company or sole trader.

A company medium does allow means of funding not available to a sole trader.

Be aware that limited liability does not mean you as shareholder/director can nver be personally liable for company debts annd liabilities. Apart from the requirement to give personal guarantees in some cases which it might be difficult to avoid (though always try!), directors may be personally liable to contribute to assets if they allow the company to trade when it is insolvent.