I have been a sole trader for 10+ years, with it being my main source of income for the past 4.5 years. My business is very easy, think consultancy, where all I really need is a lap top, broadband and a few resources. So most of the income is profit.
A couple of people have mentioned to me that I should think about changing to a limited company but I am unsure of this - does anyone have any experience of this? I am not sure what the point would be that I need to do this.
Any help on this much appreciated. I find being a sole trader v easy, do my own accounts and tax returns etc. but limited company feels to be a big step!
I was a sole trader and have just changed to being a limited company. There are tax advantages (just) but the principal advantage is that if you are successfully sued for providing bad advice -- and in these straitened economic times there is more risk that this will happen -- and your professional indemnity insurance doesn't pay out, then you are not personally liable for the debt.
I have been to a number of seminars on setting up your own business and this is the one point on which I have been completely convinced. Setting up a limited company is VERY easy and cheap. There are rather more returns to do than you do as a sole trader, but it sounds as if you could do them yourself -- or hire an accountant if you don't want to.
I must say that it's also very good fun being able to describe yourself as a Company Director, and having mail addressed to you as Managing Director! But little things please me ...
I turned from sole trader to Ltd company, but it was with the intention of building the business beyond being a single person consultancy. In all honesty, if I was going to remain a sole person, I'm not sure I could be bothered with the additional hassles and demands of being a Ltd company for the sake of the financial benefits (which are reasonable but not huge). There's more paperwork, more deadlines, more fines if you miss things out etc. But then I am not by nature a highly organised person, so these things are a burden to me but may not be to you. If not, then you will probably be better off financially. I don't know if that was even a helpful answer
It's almost impossible to do without an accountant for a Limited Company now IMHO - it's not the (abbreviated) accounts for Companies House that's the problem, as they went to great lengths to make compliance as easy and cheap as possible for small businesses.
No, its (*&^%$%^& HMRC who will now only accept Limited Company accounts supporting tax computations in a special format (iXBRL) that is only generated by specialist software, and even then it takes a bit of effort.
Fortunately, unless your profits are below about £15k you will save more in National Insurance than a decent sole or small accounting practice willl cost you.
And yes, limited liability is important - remember that PII only covers you while you are paying it but you may have liabilities that extend 7 or 12 years ahead. Best to see if you can novate any old contracts (although unless you can incentivise the counterparties this is unlikely), or see if the company's PII insurer will take on run-off cover for your self employed work.
Can I hijack a bit? Is there a best time of year to make the switch? I was considering it and wondered if it makes sense to switch at the end of the financial year, or does it not make much difference... ? Also, is there a profit threshold at which it starts to be more costly to be a Ltd Co. instead of sole trader?
Can I hijack a bit? Is there a best time of year to make the switch?
Entirely depends on individual circumstances. It is often best to do it as soon as possible but the biggest thing to consider from a tax point of view is usually whether there is any goodwill for the company to purchase.
is there a profit threshold at which it starts to be more costly to be a Ltd Co. instead of sole trader?
Not until you get to £6.5 million turnover when a Limited Company must produce audited accounts. The tax savings do start to diminish once you hit higher rate tax though and are just over 2.5% of profit in the 45% tax band.