Ltd Company or Sole Trader?

[FerbsMom]

Excuse my none knowlegde of buisness start up!

What would be the reasons I would OR would not go

Limited Company

or

Sole Trader ? Self Employed?

Sole trader is easier to manage and you can pretty much do your accounts on your own. Limited company is a lot more complicated - you are effectively an employee of the company so you have to be paid via payroll. So the money the company earns isn't yours, it belongs to the company.

I do a lot of contracting and it's a condition of some of my clients that I'm set up as a limited company because on longer term contracts, it means they're not employing me (so making themselves potentially liable for being accused of tax avoidance), they're using the services of my company.

This is a very long-winded way of saying that unless you have to, I'd stick to being a sole trader. I'm no accountant though so there's probably a load of benefits I've not considered - I'm more concerned about the practicalities!

Well, it depends what you're doing, really.

I have a very small ltd. co but was previously a sole trader.

Pros: you may pay less tax (companies are taxed at a lower rate than individuals). It may help if you want your business to be on a more formal footing.

Cons: it involves more hassle in terms of setting up, form-filling, associated costs etc. I have an accountant to deal with all of this for me because I know I wouldn't want to do it myself. You have to follow certain rules eg having a payroll (even if you're a one-person outfit).

I was perfectly happy as a sole trader though. You may be too, but without more detail I can't say any more.

I'm not the greatest expert so hopefully someone better qualified will be along soon!

Thank you both:)

I will be a sole trader/ self employed then!

Very interesting thread, I came on looking for exactly this advice.

I have a (so far verbal) offer of work as a fixed term employee from a company, but it has taken longer to jump through all the recruitment hoops than expected. As a result they're asking if I would start as an associate for a few weeks. I'd suggested going via an umbrella company (to save me the hassle of setting up as a limited company for a few weeks) but they're wondering if I would go as a sole trader on their existing associate framework contract.

It sounds like the main disadvantage would be having to calculate the tax and NI that I would need to pay on the money earnt (there could be some travel expenses to factor in). I do a self-assessment tax return anyway so I'm not too worried about that aspect of it; is there anything else I need to consider?

One consideration - depending on what you do - could be training costs. Self-employed people can only deduct the cost of training if it's an update of existing knowledge, otherwise the training costs (which could be reaching into thousands) are not deductible. A company can pay for its employees (I.e. You) to undertake any training that is relevant to their job and the cost of this training is deductible from profits.

Otherwise, when income is low then it's easier and cheaper to be a sole trader. If profit starts going above 30k-40k then it's worth considering a limited company as the tax saving from NI will outweigh the costs of setting up and running a limited company.

There's other advantages to limited companies - like limitation of liability, especially where dealing with the general public, which may mean people decide to incorporate for non-tax reasons.

Thanks riksti, this wouldn't be dealing with the public although I will need professional indemnity insurance. I assume that doesn't change the picture.

No, it's not a rule that you have to be limited. It's just that when you're a sole trader and something happens then claims against you put all your other assets in danger as well - like your house. But if you trade through a company then any claims are against the company not you personally and therefore in most cases cannot touch your personal assets. But indemnity insurance should cover most such sotuai

(Sorry, phone) ... Should cover most such situations anyway (was what I was going to say)

Blimey. That sounds terrifying. But hopefully insurance will manage that risk. I've been asked to go down the style trader route as it's quicker to get me in, but if there's too much risk on my side they can just wait.

One main very important difference - if you mess things up and are sued for £1m if you are a company then you the individual pay nothing and the company goes bust. If you are an individual you lose your house, savings - the works. That is one of the main reasons people incorporate a company although you could take out insurance if you think you might be sued.

I would start as a sole trader. It is a lot simpler and remember when you draw money out of your own limited company you pay tax on it then as well as the company paying its own tax so although there may be a bit of a tax saving with a company particularly if you don't need the money it earns in my view it is often not enough of an advantage to form a limited company.