Ltd Co -v- sole trader?

[VirtuallyMe]

As its a sunday and i am unable to contact an accountant i thought i would ask wise mumsnetters a question - i hope someone can help.

I formed my own company a few months ago - all legit and incorporated via companies house but until now havent been actively seeking clients so i the company hasnt made an income yet.

Out of the blue i have had 2 friends contact me to provide some work for them and their businesses so i now need to get my head around whether its best to just freelance as a sole trader (and make my company dormant) or just go with it and use my company? At this stage i very much doubt my business will be a big money earner - its just providing admin support to small businesses on an adhoc as needed basis) so i am wondering if the expense of running a ltd company will be worth it?

I would dissolve the company, and register as self-employed. It is a far better option at this stage, and you can always become a ltd company in the future if your business expands.

I would go as a sole trader. The only advantage of being limited is if you are borrowing money/taking risk so you won't be personally liable or if you grow and are employing people.

When I investigated it the point at which it became profitable to be a Ltd Co was about £40k. Tax rules have changed a bit since then though. I am a Ltd Co because it opens up more business opportunities for me, where companies have wanted to contract with a Co, and also I feel it looks more professional in my industry. That might not be relevant for you though.

Presumably that was because as a director of a limited company you could draw a reduced salary or take dividends & then pay a lower rate of corporation tax on your profits thus avoiding higher rate income tax.

Be aware though that although I'm not totally sure what the rules will be, the rules on directors taking dividends are changing, I think in April.

Pretty much. Rules changed this tax year, you're now taxed personally 7.5% on dividends over £5k, so money you've already paid 20% corporation tax.

Who told you to form a limited company? Did you have advice or just decide to do it?

Sole trader probably sounds more appropriate but there is more to the decision than just tax so you should seek proper individual advice. You also don't have to dissolve the limited company yet. You can just leave it there as dormant if you want to keep the name.