Sole Trader vs Limited Company

wibbler

I have a small sideline in web development - I'm thinking of focusing a little more on it. I predict I could earn between £2000 to £10000 in the next year depending on how much time I have - I have a full time "real" job too.

Should I go as Sole Trader or Limited Company to make the most income? Everyone advises Sole Trader for that little limit of turnover, but the web app at Companies Made Simple (I've put in profits of £2000 and £10000) seems to always suggest a Company is better: http://www.companiesmadesimple.com/sole-trader-v-limited-company.html

What's your advice?!

heretolearn_2

Don't mean to sound funny, but they only sell company formations, so of course they aren't going to recommend you go and do something else instead! Although to be fair that list is pretty unbiased and I can see anything on there that would make you think Ltd company is going to be better. What exactly is it that appeals about Ltd company?

Seriously, sole trader at that profit level and for that type of business.

If your total income from business and salary ends up over about £70k then it would be worth seeing an accountant for tax planning advice - and Ltd is one possibility there (but still at lower profit levels usually cancelled out by increased accounting costs).

Uncertain

heretolearn wrote: »

Seriously, sole trader at that profit level and for that type of business.

In most respects I would agree.

However, one other point to consider......

If any of your clients are likely to be large organisations, particularly if it is regular work, they can be very nervous about "employing" individuals and may want to deduct tax at source etc. Being a limited company solves this problem at a stroke. Obviously it involves you in extra admin and costs so if you are only dealing with the general public or small businesses it is not worthwhile.

heretolearn_2

Hmmm..don't really see that as an issue, to be honest. Sole traders are not necessarily one person, some quite large businesses are run under this structure for various reasons (well, large for small businesses if you see what I mean) so there's no reason for them to assume they are employing an individual.

Use a trading name and it shouldn't even cross their minds about whether you are a legit business or not. Work as 'Blue balloon websites' (ugh) rather than Joe Bloggs, from day one. Creates a more professional image, and allows for business expansion beyond a one man band, should that become an option.

We recently became a partnership but before that were a sole trader business, always operating under a business name not a personal one. It's not been an issue anywhere and we do have some quite large clients (again in the small business sense, but I am thinking of clients with a turnover of several million a year) and as far as I am aware, no one's ever even asked our business status.

Now that most businesses know any idiot can set up a Ltd company online for about £50 in 5 minutes, I think the 'prestige' or 'reputation' of being a Ltd or a company director has long gone.

Uncertain

heretolearn wrote: »

Hmmm..don't really see that as an issue, to be honest.

It shouldn't be I agree but I could point you at several well known institutions where this is exactly how they work.

Independent thinking is not encouraged I'm afraid............

wibbler

Thanks to everyone for their advice. Companies Made Simple do a "Sole Trader Pack", but I guess there are free ways I can set up as a sole trader?

Edit: I found it: https://www.gov.uk/business-legal-structures/overview

KiKi

You don't need to 'set up' at all. Just tell HMRC you're self employed - and that's pretty much it.

Keep all your invoices, and all your receipts. Fill in a tax return.

KiKi

phill99

Uncertain wrote: »

If any of your clients are likely to be large organisations, particularly if it is regular work, they can be very nervous about "employing" individuals and may want to deduct tax at source etc. Being a limited company solves this problem at a stroke. Obviously it involves you in extra admin and costs so if you are only dealing with the general public or small businesses it is not worthwhile.

What absolute rubbish advice.

Large organisations employ both limited companies and self employed people.

Being a Limited company doesn't make tax deduction any easier than for a sole trader. The process is the same.

Having run my own limited company and worked as a sole trader, the costs of operating as a sole trader are much much less than a limited company. If you have a relatively low profit, the much higher accountancy fees for a limited company can't really be justified.

If you have a high turnover, if you employ people or you have a high exposure to risk, then a sole trader is fine.

Annisele

I think Uncertain is right.

I've traded through a limited company before solely because my clients refused to deal with sole traders. Partnerships were fine, LLPs were fine, limited companies were fine, but sole traders were an absolute no-no. I agree that shouldn't have been the case, but it was.

Many large companies are perfectly happy with self employed people, but a few of them are (IMHO) idiots about it. If your likely clients are in the idiot group, you can either argue with them or incorporate. I incorporated.

Uncertain

phill99 wrote: »

What absolute rubbish advice.

It most certainly is not.

It may well not apply in your industry but I could provide plenty of examples of organisations who do have that kind of policy, particularly if the work is at all regular.

For what it is worth I think they are being paranoid but that doesn't stop it happening.

phill99

But the OP is only going to earn from £2k. If you set up a limited company nearly half of that will go into accountancy fees. That cannot be justified.