Utterly confused about sole director vs self-employed

georgiosd

Hello,

I was self-employed a couple of years ago and now I have resumed business someone told me that registering a limited company and getting taxed as a sole directory though a bit more complicated would save me money in the long run.

So I did register and got my company name and received the HMRC letter which asks me to tell them whether I've started trading or not, etc... Going through all the tax related requirements is giving me a headache however...

I haven't sent the form back yet to say I have started doing business so I could always just declare being dormant and go back to being self-employed.

So here are my questions:

1) Does being a sole director have any benefits, tax or otherwise, versus being self-employed? If so, what are they specifically? I don't think I'll be earning more than £20,000 this year and I'd need to live on the income as I don't have any savings or other income source.

2) Is there a good guide somewhere about all the duties of a sole directory company? I find the HMRC a bit chaotic because it has information about every different case and uses quite a bit of jargon.

3) Is there any software, commercial or not, that can do all this stuff for me?

Thanks everyone!

zygurat789

I think you're goint to need an accountant because you are now subject to a whole new raft of legislation, the companies act, if you are late filing accounts
the fines can be quite large and the accounts have to comply with the act.
Whether or not it will be beneficial is always arguable depending on income, the larger the more likely it will be beneficial, but watch out for cars benefit in kind.
There will be lots of guides, but you dion't have the time.

Elaine_Wilson

I agree that you will probably need to take professional advice. There are lots of areas to consider and although many provisions will not apply to you it is important you sort out the critical areas.

To explain the concept of using the company to save money I will use very round figures. For about the first £6,000 of earnings there is no problem. This can be paid as a salary and no tax is due as your personal allowance will cover this.

The remainder of the earnings (say, £14,000) will be taxed at 20% if you are self employed or the company will pay corporation tax of 21%. So a slight loss using the company. The after tax earnings can be drawn out of the company as a dividend and you would not have any further liability on this.

The real saving comes with national insurance. As self employed you pay class 4 NIC of 8% on this £14,000 (about £1,100). Using the company bypasses this.

The downside, as you've discovered is the extra administration. You need to deal with Payroll, corporation tax and your own self assessment on the tax front. The accounts need to be in the correct format and comply with the relevant accounting rules. There is also paperwork involved in declaring the dividends and other documents need to be filed at Companies House on a regular basis.

There is no software which will run all these aspects of a company. If there were it would be hideously expensive. And to effectively use the software there is still requires you to have some knowledge of the rules.

TM1976

georgiosd wrote: »

1) Does being a sole director have any benefits, tax or otherwise, versus being self-employed? If so, what are they specifically? I don't think I'll be earning more than £20,000 this year and I'd need to live on the income as I don't have any savings or other income source.

If you are earning under £20k a year it's not worth going through a Ltd co for tax reasons alone. If in the future you earnin enough to get into the 40% band you can incorporate you business then.