Anyone self employed?...did you register as sole trader or company director? Which is best?

[SapphireBattersea]

I am in the process of going self employed, I will be working on my own to start with but if my business becomes busier I will look at employing someone, however that will be a lot further down the line!

I only started in October so will need to do my tax return between (I think - end of march 2019 and January 2020) and have only earned about £1000 since then so it is really small atm :D ...however my client base is building slowly and I am hoping it might lead to something a bit bigger

I have spoken to an accountant for some initial advice and basically he says these are my 2 options.

So just wanted to hear from MNERs who are in or have been in similar situations when starting up a business and ask which option you went for. and what are the positives and negatives of both options

(tbh I like the idea of being able to call myself a company director :D)

TIA

Currently self employed for second time. LTD both times but mainly due to industry - IT contracting is almost all done through Ltd cos.

There are advantages and drawbacks to each.

A lot of people who have never done it will say Ltd is a tax-avoidance move - it really isn't. Taxation is different, but we are paying our way.

HMRC does seem to be trying to stamp out one person Ltds using IR35 - it seems as if they only want people to work for larger employers.

LTD may be marginally more admin but there really isn't much difference.

Sole Trader. I don't want to do any more admin than I do now

My accountant said setting up as a Ltd company costs more initially, he didn't mention any tax advantages. I just assumed you would pay tax normally through both ways once you have past the threshold (12500 pa i think?) I am Happy to pay whatever tax I am supposed to, I want to be completely legit. This is what scares me about going it alone, I would hate to unknowingly get into trouble

can I ask What extra admin would it involve And what are the advantages / disadvantages of either way please?

Sorry for the daft questions I am just completely new to all this

and thank you for the help so far x

LTD companies don't have a personal tax allowances, you as a sole trader do

The extra admin is you have to do 2 tax returns. Company and personal.
It depends entirely on the nature of your business to what’s more advantageous.
And who doesn’t in their right mind want to pay the minimum tax that their liable for. It’s just logical.

But you still get your personal tax allowance regardless.

I would say in all honestly trade as a sole trader until you get your head around that. If you're using an accountant for everything the extra admin of being limited won't effect you as much but personally I'm glad I learned the ropes of being a sole trader before forming a limited company.

A major benefit of a limited company is limited liability.

In terms of tax, I once read whilst pondering what you are now, that up to 30k there's not a huge amount of difference between limited and sole trader. You will spend more on accounting though and so it's probably more efficient for your business to be a sole trader until that point, tax wise.

right that has decided it, I am gonna be a sole trader, could not be arsed with 2 tax returns

thank you!

If it helps the nature of my business is commercial, office and domestic cleaning, I do it myself now but ideally I would like to get to the stage where I have a small cleaning team that will do it for me.

For cleaning I would go sole trader then if you decide to employee people you can go ltd. It won't make any difference to your customers when you change what will make a difference is if you go over the threshold for being VAT registered (£81000) which as you say is somewhat off. It is totally doable when you take on lots of staff though so long term something to think on.

yes I am some way off earning 81k atm

do you have to be a ltd company to employ people ?

Were you employed until October and paying tax under PAYE? If you have only earned around £1k so far, but you have paid out for equipment, advertising etc, then you may have made a loss in the period to 5 April 2019. This can be offset against your earnings from employment, giving you a nice little tax refund shortly after 5 April 2019. This is one of the reasons why it is sometimes beneficial to initially set up as a sole trader then incorporate later.

No sticker I have not been working, until I started my business been a SAHM of 4 for over 4 years! my Youngest has now gone full time school so was time for me to start doing some paid work

My accountant asked me this for the same reason lol x

It sounds as though you are taking the right advice and setting things up well. On balance, I would set up as a sole trader initially, focus on building up a good client base, then think about incorporation when you are more established. Your accountant would charge you more for dealing with a company and it's another overhead you can probably do without in the early days. Good luck with your venture.

It’s not worth the cost and admin of being a limited company, unless you’re a higher rate tax payer. That was always the advice of my previous employer (chartered accountant)

I would say sole trader is best for you currently. If you do want to employ people they will have to be on paye and all that entails so ltd company would be best.

Although I have to add, the admin of a ltd company is really not that hard. And if you get quick books or the like, then it’s really simple. These new websites make it so much easier to be self employed.

Thanks so much everyone! Some really great advice

Going to stick to being a sole trader for now...hopefully my business will get busier and more profitable and then I can take it from there 😀

You can employ other people as a sole trader.

I thought you didn't have to do anything at all yet. My understanding is that there is an £1k a year profit 'trading allowance.' Until you go over that, you don't need to register as anything, don't need to do any tax returns. I think.

Oh I am not aware of that arehereanyleftatall I will go over that £1k by the time my return needs doing but good to know, thank you

Miranda can I? That's interesting!!

Sapphire although you will get a lot of people telling you to incorporate (set up a limited company) to protect yourself and your own assets, there is little reason for you to do so. It doesn't sound to me as though you will need to borrow money to run your business and, even if you did, a bank would expect you to give the same personal guarantees whether you were a sole trader or running a limited company.

Sole traders can employ people, borrow money, be vat registered etc in exactly the same way as a limited company. I suggest that you take out good levels of insurance cover if you are going to be in people's homes. Start as a sole trader and grow your business gradually. Use an accountant to help you with your tax (don't take advice from people on MN who don't know the full picture!) and keep on top 9f the paperwork.

P.S. I AM a chartered accountant, so I AM qualified to give you this advice!

I am a sole trader. Good advice above although I think it is best to tell HMRC as soon as you start trading.

The other point to consider is when and if to register for VAT - more admin but you can then claim back the VAT you have spent on items for the business so can be worth doing sooner rather than later although if you are a business where your customers are individual consumers not businesses having to add 20% to what you charge them may put them off. If your customers are all limited companies in business as mine are then it would not. When you start you will not be over the VAT threshold so it will be a choice not compulsory.

Thank you Xenia and Sticker for the advice, it is very helpful.

Have already got cleaners/public liability insurance, I did that when I started.