Sole trader vs limited company

[B00m3rang]

I'm setting up as a freelance consultant and I've secured my first contract (keen for me to start asap, probably in the next week or so) but I need to do the official bit with HMRC. Does anyone have any advice when it comes to advantages/disadvantages of being a some trader vs limited company and any idea on how long each takes to get set up? I called HMRC this morning and they weren't too helpful! Any advice would be great, thanks x

If you're a sole trader you pay income tax (usually at 20% or 40% depending on your level of income) same as if you receive a salary but you'll have to pay your income tax direct to HMRC as well as your self employed NI contributions.

If you set up a company then you become either a director or an employee of that company and receive dividends or a salary. The company itself will pay corporation tax on its profits.

The right answer for you depends a lot on how long you will be freelancing, how much income you will have and how many customers you expect as well as how much admin you are willing to do.

Speak to a local accountant who can run you through the pros and cons of sole trader vs incorporation.

Hi I am in a similar position to the lady above . I am a single mum and already a sole trader - Artist. Recently I have been working in Bollywood film , in the art dept. So my income has gone up, but not enough to live on . I am in reciept of wt- credits and housing benefit and have been advised by an accountant to become a ltd company and an employee so as I can keep the buffer of my Wt- credits whilst my income hopefully stabalises. I could find myself broke if I don't get anymore well paid work next year and the tax credits and housing ben have me down earning more than I am . It is a tricky area for me financially because I don't think the Bollywood work is sustainable, for one it happens away from home and so I have to leave my children with my mum, plus all sorts of rediculous hours that are not maintanable. I'm looking for really good accountant that is good at this stuff and not put off by my small business. as I said there is this accountant that I have spoken to but he wants £1000 + vat + £73 statement fee per year for me to be a ltd, which seems like a lot . Can anyone recommend a good accountant that deals with this kind of stituation. I know it sounds a bit silly but I would like to deal with someone that is maybe sympathetic to people in my situation, I know that sounds a bit mad considering I am looking for an accountant rather that a phycologist. But it would be great if anyone knew an accountant like this as I'm sure you understand juggling all this on top of family life is stressful . Thanks in advance.

I don't actually think £1,000 per year for full limited company service is that bad, especially if you're going to need a lot of support/hand-holding etc. Presumably that includes your monthly payroll submissions as well as the yearly accounts/returns? It's certainly about average especially if they're properly qualified (i.e. chartered). You'd find cheaper, but you'd also find more costly.

It would be cheaper if you did more yourself and were more self-sufficient, i.e. maybe learned how to do your own payroll and book-keeping?

But at the end of the day, accountancy like any other "service" is time-based, so if you want more support & hand holding, then that takes time, so charges will be higher.

If you want a "good" accountant then search for a chartered accountant: either ICAEW if you are in England/Wales or ICAS if you are in Scotland. There are hundreds of highly skilled and reliable independent accountants who specialise in helping small businesses. Finding the right one for you will stand you in good stead for the long term. The last thing you want is to set up a ltd company and get into trouble with the regulators because you don't know what you're doing.

I am a chartered accountant but my firm charges me at £500/hr so you probably don't want to hire me! £1000 for an annual service sounds quite reasonable to me

I've recently been in a similar position. I set up a ltd company. I've just done my tax returns and, when talking it through with my accountant we also worked out (roughly) how much tax I would pay as a sole trader and it worked out (roughly) the same BUT my accountancy fees are higher because I have a Ltd company.
The accountant (who isn't the one I originally used when I set up the company) said that Ltd companies are generally not worth it unless you're earning £30k+ (I don't earn that much). I found it all so confusing when I originally set the business up and still don't really know what's best. One thing I would say to anyone setting up a business is save 20% if everything you earn as tax is a killer (and way more than I thought it would be!)