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    • H2Joe
    • By H2Joe 16th Sep 17, 10:57 AM
    • 2Posts
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    H2Joe
    Self employed: Sole Trader or LTD company?
    • #1
    • 16th Sep 17, 10:57 AM
    Self employed: Sole Trader or LTD company? 16th Sep 17 at 10:57 AM
    Hi all
    This is my first post and am seeking advice regarding becoming self employed.
    I have just finished my Masters degree and have been offered a position locally which requires me to be self employed. I am happy to do so as it gives me flexability over my hours but the manager suggested I set up a limited company.
    I've done a little research regarding ltd companies and can see the benefits of them but don't think it would be best for me.
    I'm looking for advice as to what would be my best course of action.
    Salary would be variable but would likely sit at around £45k rising over the first few years to potentially £75k. Expenditure would be minimal as I generally wouldn't need to purchase anything but have seen that to be a ltd company I would need to spend at least 2% of profits which I think I could achieve by upgrading PC's etc.
    What would be my best option?

    tia

    joe
Page 1
    • Pennywise
    • By Pennywise 16th Sep 17, 12:14 PM
    • 9,109 Posts
    • 16,524 Thanks
    Pennywise
    • #2
    • 16th Sep 17, 12:14 PM
    • #2
    • 16th Sep 17, 12:14 PM
    but have seen that to be a ltd company I would need to spend at least 2% of profits
    Originally posted by H2Joe
    Where on Earth did you see that? There is no such law/requirement. I think you've been looking at something else - perhaps a non UK business website?
    • polymaff
    • By polymaff 16th Sep 17, 12:17 PM
    • 1,683 Posts
    • 716 Thanks
    polymaff
    • #3
    • 16th Sep 17, 12:17 PM
    • #3
    • 16th Sep 17, 12:17 PM
    Not enough info to answer your question but, nowadays, people go down the more expensive Ltd Company path as:

    a) they attempt to space themselves away from being classified as an employee of the businesses to which they are supplying services, and,

    b) they can phase personal income/NI in the most tax-efficient way.

    The only thing I can think of related to 2% of turnover is the new constraint on what HMRC regard as abuse of the flat-rate VAT scheme. This applies equally to sole traders and to limited conpanies.

    https://www.gov.uk/government/publications/tackling-aggressive-abuse-of-the-vat-flat-rate-scheme-technical-note/tackling-aggressive-abuse-of-the-vat-flat-rate-scheme-technical-note

    You'll note that HMRC have already caught on to your wheeze regarding "upgrading PC's"

    EDIT: Just noticed my spelling mistake - limited coNpanies - or was that an entirely appropriate freudian slip?
    Last edited by polymaff; 16-09-2017 at 12:36 PM.
    • kidmugsy
    • By kidmugsy 16th Sep 17, 12:43 PM
    • 9,629 Posts
    • 6,381 Thanks
    kidmugsy
    • #4
    • 16th Sep 17, 12:43 PM
    • #4
    • 16th Sep 17, 12:43 PM
    I have just finished my Masters degree and have been offered a position locally which requires me to be self employed ... the manager suggested I set up a limited company. ... Salary would be variable but would likely sit at around £45k rising over the first few years to potentially £75k.
    Originally posted by H2Joe
    The advantage of the Ltd is that you typically pay yourself a small salary (a little above £8k p.a.) which is big enough to qualify you for each tax year counting toward your eventual State Retirement Pension, but small enough that you pay virtually nothing in National Insurance Contributions. You then take the rest of the income you want in dividends, which are lightly taxed. Your company, however, will have to pay corporation tax on its profits (your salary - but not your dividends - is subtracted before profits are calculated). You'll get your accountant also to sort out VAT for you. Once the company starts making a good reliable revenue you can have it make pension contributions for you. These too are tax-efficient because they are subtracted from revenue before profits are calculated.

    There's one thing you have to get into your head: you and the company have separate legal personalities. Don't think about "my money" when you mean the company's money.
    • polymaff
    • By polymaff 16th Sep 17, 12:51 PM
    • 1,683 Posts
    • 716 Thanks
    polymaff
    • #5
    • 16th Sep 17, 12:51 PM
    • #5
    • 16th Sep 17, 12:51 PM
    ... and talking of coNpanies, parse yourself through:

    https://www.gov.uk/guidance/check-employment-status-for-tax

    These days HMRC are on the trail of your pseudo-employer and yourself.
    • H2Joe
    • By H2Joe 16th Sep 17, 1:21 PM
    • 2 Posts
    • 0 Thanks
    H2Joe
    • #6
    • 16th Sep 17, 1:21 PM
    • #6
    • 16th Sep 17, 1:21 PM
    My apologies if i've offended then. I was just after some advice as I only received this news yesterday and was exploring what would be my best options. I was told by the chap who has offered me the position that it would be best to start a limited company but I don't like taking financial advice on face value and would rather fully understand the repercussions of any decisions I make.
    I think perhaps it would be best to seek an accountant/financial advisor and discuss the matter with them.
    • kidmugsy
    • By kidmugsy 16th Sep 17, 3:34 PM
    • 9,629 Posts
    • 6,381 Thanks
    kidmugsy
    • #7
    • 16th Sep 17, 3:34 PM
    • #7
    • 16th Sep 17, 3:34 PM
    I think perhaps it would be best to seek an accountant/financial advisor and discuss the matter with them.
    Originally posted by H2Joe
    Yes, you'd anyway probably use an accountant to set up the company for you, register it, and do its and your tax returns. A young member of my extended family did this a couple of years ago; it was quick and cheap.
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