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Original poster

When is it right to become a limited company?

75 replies

AlicanteLullaby · 09/12/2013 16:53

I established my private psychology practice last year. All things considered, it's going pretty well, better than I expected. I will turnover about £55000 this year, have about £10000 of expenses and pay myself £1600 pcm. So, quite a big surplus that I will keep in the business account, in case of needing to buy equipment, needing time off work etc. When I am working full time in a couple of years, I hope to turn over £100000, but will have more expenses (admin support?).

Is it now worth establishing a limited company or am I just as well off as a sole trader?

Thanks :)

OP posts:
Kewcumber · 12/12/2013 22:01

I'm wracking my brains to think what happens at £150k to reduce the benefits of being ltd.

Perhaps I need retraining.

Suzietwo · 12/12/2013 22:03

Yes

See above

I'm a lawyer not an accountant, sozzlepips

Kewcumber · 12/12/2013 22:07

I've used that exact link to illustrate to some clients the difference between ST and Ltd company.

But its a massive simplification and also doesn't take into account increased accountancy costs (unless of course you can do your own).

You really are better off talking to an accountant with your own personal information to hand.

Suzietwo · 12/12/2013 22:12

Actually I thiiiiink, the ones my accountant showed me worked on marginal tax rates rather than amount saved. So the lowest rate was at around 100k and although you remain better off as the income rises, the % tax actually paid is slightly higher at 150 as against 100

I think that's what it was anyway

TalkinPeace · 12/12/2013 22:23

but that link is so superficial as to be pointless
it ignores the tax advantages of salaries, minority shareholders, employer schemes for directors
and a multitude of other issues
which is why very few people have high income sole traderships (most of those I've worked with have 'interesting' business ethics)

caroldecker
I linked to the VAT rules above - it depends on which services the OP is providing

Oxymoron99 · 13/12/2013 06:02

Thanks. It's similar business to the OP so no VAT. However, I'm not earning around £100,000 but more like £67K to £77K before expenses/tax etc - so maybe I don't earn enough to make it worthwhile setting up a ltd co.

I hadn't realised that it didn't matter of you need to take out a lot in dividends and had thought if you effectively leave pennies only in the business each yr, after salary and dividends, that the advantages of having a ltd co were negligible.

I've never used an accountant and always don my own v simple accounts so, again, don't know if the added expense of using one - plus needing to do more complex accounts - is going to be worth it.

bellablot · 13/12/2013 06:23

You will of course be better off earning what you are as a limited company. Currently you pay tax on all incomes, as a limited company you only pay tax on PAYE, you could potentially pay yourself minimum wage and the balance (up to 1600 per month) in dividends and still be better off tax wise. There is ALOT more paperwork however. How much are you paying your accountant? He should be advising what's best for you, not what is easier for him. If you don't want to set the whole thing up, which is a total ball ache and takes some time then employ an accountant who has been recommended by friends or family.

And NIC's is a whole other ball game, you don't have to pay any on a wage between £424-£626 but are still entitled to benefits, maternity etc, after this amount you pay and as an employee and director of the company it will be worked out differently to SE, your accountant should do all that for you at a cost.

Hope this makes sense. Smile

Suzietwo · 13/12/2013 08:10

I don't think its a useless link for the lay person. But obviously to you tax gods it raises more questions than it answers.

Kewcumber · 13/12/2013 08:35

I'm not earning around £100,000 but more like £67K to £77K before expenses/tax etc - so maybe I don't earn enough to make it worthwhile setting up a ltd co.

Oh lordy I wasn't going to post again but please please please don;t listen to suzie - it just isn;t true that you need to be earning £100k for it to be worth setting up a ltd company.

Please talk to an accountant who knows your personal situation and and can give you competent advice. The accounts aren't that much more complex and anyway and accountant will be doing them for you. If your situation is relatively straightforward then you'll easily save more money than you spend on accountancy/book-keeping fees.

Suzietwo · 13/12/2013 08:46

I didn't say you have to be earning 100k to benefit. I said the benefits maximise at around that level and I went on to say that I am quantifying the benefits by comparing marginal tax rates. Read the words.

TalkinPeace · 13/12/2013 13:19

Oxymoron
going limited starts to be of benefit as soon as you are turning over around £30k
And as for using an accountant : a good accountant is your own small business adviser.
They will save you more than they charge you.

bellablot
Currently you pay tax on all incomes, as a limited company you only pay tax on PAYE
That is an incredibly misleading statement. Dividends are paid after payment of corporation tax by the company so the business pays tax and the director has 'deemed' tax.

suzietwo
I didn't say you have to be earning 100k to benefit. I said the benefits maximise at around that level
but that is utter bilge
as picking one single benefit out while ignoring the holistic overall view is rarely to the benefit of the business.
Fine for over remunerated lawyers making a point, but not for those helping a new freelancer to develop and grow their business.

Suzietwo · 13/12/2013 13:29

Gosh

That's me told eh

Kewcumber · 13/12/2013 14:58

suzie - I wasn't planning to comment further on your earlier post even though I thought it was hugely misleading. But Oxymoron obviously read the post exactly as I would have expected the majority of lay people to have read it and as a result had decided I'm not earning around £100,000 but more like £67K to £77K before expenses/tax etc - so maybe I don't earn enough to make it worthwhile setting up a ltd co.

Which is just wrong and could potentially lead her into losing potentially thousands of pounds of perfectly legal cash (not to mention the other advantages of incorporating).

What would you suggest I do, as a fellow professional, let someone walk away with totally the wrong impression? What would you do if you saw an accountant giving patently incorrect legal advice? You have my permission to correct me as vociferously as you like if you ever see me do it.

I went on to say that I am quantifying the benefits by comparing marginal tax rates would you like me to take a straw poll of how many people on this thread actually understood that. I'm really not convinced comparing marginal tax rates is in any way relevant. Whats important is the pros and cons of being limited, whether it works better for your business and whether you are actually better off as a result. In real terms, real cash.

Suzietwo · 13/12/2013 17:45

I'm sorry but I think you've hugely over reacted

But then this is mumsnet huh

TalkinPeace · 13/12/2013 21:23

suzietwo
Its less a huge over reaction than a DEEPLY pissed of at people posting bollocks.
I started writing my ebay me page 8 years ago to counteract twonks like you
members.ebay.co.uk/ws/eBayISAPI.dll?viewUserPage&userid=talkinpeace
I am in no way shape or form a "tax guru"
but I know that expertise is as it says

Kewcumber · 13/12/2013 22:03

suzietwo - you have left someone however unintentional with the impression that it probably isn't worth her while incorporating when it's likely the opposite is true. Saying I have over-reacted by correcting this impression is a very odd reaction for someone who says they are a lawyer!

Suzietwo · 13/12/2013 22:08

I posted something which I wasn't particularly sure about but which I thought was true. I went on to recommend using an accountant. I didn't say 'you have to earn 100k to benefit from this' but I thought the benefits maximised at 100k in percentage terms. I didn't put a lot of thought into my post, admittedly. Perhaps I should have but I wasn't looking for a fight.

I have changed from ST to ltd company over the last few years and spent some time assessing when it was worth it. Taking all into consideration, it looked to be most worthwhile at 100k (which I may or may not have been earning and which I may or may not have been over remunerated for, who cares?).

Your response is completely over the top and personal. I find that odd.

Suzietwo · 13/12/2013 22:08

You're right. I'm not a lawyer.

Suzietwo · 13/12/2013 22:09

Do people read things on here and assume them to be true? Is that how mumsnet works?

TalkinPeace · 13/12/2013 22:13

suzietwo
your quote I'm a lawyer not an accountant
if you are a lawyer, your are not one used to dealing wirh small businesses in a time of unrelenting change
so either be a lawyer or butt out

Suzietwo · 13/12/2013 22:15

Why so personal?

Suzietwo · 13/12/2013 22:17

And I'm sorry, I was being flippant with 'you're right, I'm not a lawyer'

Kewcumber · 13/12/2013 22:21

My response is not in the slightest bit personal Confused By all means post it as a personal attack to MN and let them decide.

I am correcting the stuff that you are posting which is misleading. If you stop posting misleading information I will stop correcting you.

The benefits don't "maximise at 100k" - I really don't understand what you mean.

You can post whatever you like - but I will continue to correct it if I think its wrong or misleading.

Suzietwo · 13/12/2013 22:26

Report it? My god no. I'm not bonkers.

I just don't think I wrote what you read and that you've both gone a bit ott. But clearly I did if you've both read it like that. I certainly didn't mean to mislead anyone. I'm not a specialist, I just said what I thought was the case.

I don't often interact on mumsnet. Maybe I'm not cut out for it.

Kewcumber · 13/12/2013 22:31

'you're right, I'm not a lawyer' Confused

I'm not sure what you're talking about - I didn't say you weren't a lawyer. I was expressing surprise that someone in a profession would give such misleading advice on something they obviously aren't well informed about.

In your defence you did briefly mention one specific bunch of accountants.

Why do you think its personal?

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