Sole trader or limited company? Advice plse

[Mummyisamonster]

Anyone had experience of setting up as either a sole trader or a limited company? Can I pick your brains please?

My husband and I have have set up a partnership very similar to sole trader. We filled in the bank account details, I registered as self employed and do a brief profit and loss set of accounts once a year and the accountant uses this for the tax return.
We also have set up a limited company using the company wharehouse's registration service. A Limited company is alot more trouble you have to register accounts and minutes of AGM with companies house each year.
There is no benefit either way with VAT the threshold is the same for both. Tax wise if you are a sole trader you have your normal tax allowances and banding. If it is a limited company yes you can declare yourself a dividend and pay capital gains tax at 18% on that, but the company has to pay corporation tax.

Thanks Lizcat, that is really useful. So much easier when you work for someone else! Cheers

It also depends what work you're involved in. My partner and I run a consultancy as limited company as some firms we deal with will only do business with a limited company.

You also need to consider the liabilities of a partnership. Put simply: if you get into financial or legal difficulties you are jointly and severally liable- i.e. another member of the partnership can make an error and you're all to blame; and the same goes for any debts. A limited company, on the other hand, does not normally carry such liabilities. Yes, Companies House stuff does have to be submitted every year but our accountant includes that in his fee(not massive) and partnerships should also have accounts audited anyway for good practice.

However, since 2001 there are now 'LLPs' limited liability partnerships which include elements of both - but I'm not too sure about the details.

Hope this helps.
Wizzie

if you operate as a sole trader then any profits you make are taxed as part of your total income. You pay nothing on the first £6475, 20% on the next £37.4k and 40% on any income after. In additon to the tax you also pay class 4 national insurance at 8% on profits above £5.7k this is in additon to the tax.

If you operate as a limited company then you pay corporation tax at 21% on profits. the company is treated as a seperate legal person to you so any income you withdraw from the company is taxable in your hands, however typically small companies will pay their director/ shareholders a salary just below the NI primary threshold of £110 per week. This means that no tax/NI is due on the salary but you still get NI credit for state pension purposes. in addition to this income is then topped up by dividends and as long as your total income remains within the basic rate band you do not have to pay any tax on dividends.

It depends on your level of profits which works out better but unless very low profits it is usually the company route due to the NI savings, although of course there are extra requirements with a company which can result in compliance costs through having to pay an account.

If you expect to make losses in early years then you are better to trade as a sole trader as you can offset these losses against any other income you have.

Unless your profits are very low, in which case you may as well trade as a sole trader, then I would suggest you contact an accountant who can look at your individual situation and advise.