Going Ltd?

RoxieW

Hi there

I'm looking for advice on going Ltd please.

I started my business, freelance copywriting in a nutshell, 2 years ago. First year profit £10k, second year profit £40k, gross £55, projected third year profit £55k minimum, gross IRO 75k. I employ 2/3 freelancers on a part time basis.

As I understand it, I'm on the cusp of the values whereby going Ltd may make more financial sense. Please can someone advise me on what's involved in this, will I be better off, by how much and if/when I need to register for VAT. I'm not keen on the idea of being VAT registered as I don't have overheads that I can claim back on, and I will have to pass the VAT onto my clients (I imagine), which will affect the competitiveness of my rates. Is there any way to be Ltd and avoid registering for VAT?

Thank you in advance.

InsideInsurance

VAT rules are identical for sole traders and Ltd companies so incorporating wont make and difference at all.

The current threshold is 79k, once your turnover is projected to exceed this then you must register. Below that it is optional and only ever sensible to do if (a) you sell a zero rated product (eg childrens clothes) or (b) most of your customers are also VAT registered

If you do exceed the threshold you do have the option of entering the flat rated scheme until you excess 150k turnover. With this rather than collecting all the VAT and paying it to HMRC and then recovering the VAT from all your eligible business expenses you instead simply pay a fixed percentage of the VAT to HMRC and keep the remainder yourself in lieu of recovering VAT from expenses (though you can still claim back the VAT on capital purchases over 2k). The exact percentages vary depending on your line of business.

RoxieW

Thank you. So, this month I turned over over £8k, with over £6k profit. Does this mean that I am now projected to go over the threshold and should register? This month is my best month so far and there is no guarantee that those levels will continue.

chalkie99

Congratulations on what looks like a very successful enterprise.

Your wording (ironically!) is a little ambiguous. You talk of projected profit of £55k with gross of £75k. Depends what exactly you mean by "gross".

Are you talking about nett profit and gross profit or do you mean profit and turnover (i.e total sales)?

VAT is based on your total turnover so if you are projected to exceed £79k this year (or exceeded £77k last year) you must register for VAT.

Are your customers not already VAT registered themselves? It does seem the sort of work you would be supplying on a "business to business" basis. If that is the case then your VAT registered customers would be able to claim back the VAT you charge them and it wouldn't affect your competitiveness.

As a bonus it might enhance your professional appearance and encourage new customers.

Financially, you have almost certainly reached the point where you would be better off as a ltd company as you can save on National Insurance contributions by paying yourself dividends.

Speak to an accountant to confirm this is your best move.

RoxieW

Chalkie

I know, I'm sorry, my business has grown much quicker than I expected and I have no prior experience in business matters and terminology (and very little spare time in which to educate myself!).

By gross I mean 'total sales'. By net I mean what I have leftover when I have paid out to freelancers and the small amount of business overheads/expenses I have.

I do supply business to business, yes. I'm just worried about adding complications for my clients. How does the 'flat rate' work? I pay a fixed % (looks like 10% from what I can gather) to HMRC. What do I then charge my clients? The same?

What is the basis of 'projected' - for example, I've gone over the VAT threshold this month, but there are no guarantees for future months, and I didn't exceed it last year?



Thank you

gb12345

RoxieW wrote: »

I do supply business to business, yes. I'm just worried about adding complications for my clients. How does the 'flat rate' work? I pay a fixed % (looks like 10% from what I can gather) to HMRC. What do I then charge my clients? The same?

The rate will depend on the sector that you are deemed to be in and regardless of what rate you pay to the fixed rate scheme, you still charge your clients the full VAT rate.

The idea of flat rate is that it simplifies things by estimating the rate of VAT you would be paying allowing for VAT claimed back on expenses. It is unlikely that you would get the 10% rate as in your industry there are few claimable expenses (can't remember what rate my accountant told me I would get when I was contracting, but it was higher than 10% and its a similar type of industry).

RoxieW

The closest I could find was advertising - I write ad copy. And that's charged at 11per cent, with a 1 per cent first year reduction.

WHA

Don't worry about projected sales. You have to register when your "last 12 months" turnover exceeds the current reg threshold of £79k.

It's on past turnover, not future turnover, unless you're going to take £79k in a single month, which doesn't sound likely!

Once registered, you simply add VAT to your business customers and they reclaim the VAT. Simples. Only problem is if your customers aren't VAT registered businesses, such as some charities, govt bodies, private individuals or small firms. In those cases, you may have to absorb the VAT (i.e. charge the same). You'll have to do the sums as to which clients you can add the VAT and which you need to absorb. Then think about the flat rate scheme. You can't generalise, it really is down to your particular circumstances. Your accountant can help you with the sums.

Re the ltd co, I'd say you're already missing out with a profit of £40k last year - you could easily have saved a couple of thousand in NIC alone with a ltd co instead of being a sole trader. Again, get your accountant to give you a comparison of taxes etc as a sole trader as opposed to a ltd co. Of course, there are extra costs of a ltd, but I tend to work on it still being viable to incorporate when profits are over £20k p.a. in most cases.

Like as said above, VAT and LTD are two completely different things - you can be one without the other, both or neither. It's up to you and your circumstances.

RoxieW

Thank you.

I will arrange a meet with my accountant.

From what I can gather so far I'm best off going Ltd money-wise for this tax year. But what does this entail on a monthly basis. I do all my own admin and time is, indeed, money. I read that when you are ltd you pay tax monthly rather than yearly. Does this mean that I don't do self assessment anymore and go through a different system?

I then don't need to worry about registering for VAT until my total sales exceed £79k in this tax year? It then seems that paying a flat rate of 10 per cent and charging VAT to customers will be the best way forward for me as I purposely keep my expenses very low by working from home instead of an office, and employing freelancers rather than on payroll.

Thank you for the helpful replies.

gb12345

RoxieW wrote: »

Thank you.

I will arrange a meet with my accountant.

From what I can gather so far I'm best off going Ltd money-wise for this tax year. But what does this entail on a monthly basis. I do all my own admin and time is, indeed, money. I read that when you are ltd you pay tax monthly rather than yearly. Does this mean that I don't do self assessment anymore and go through a different system?

You will pay corporation tax on a yearly basis - your accountant will tell you when the first payment would be due as it depends on your financial year.

The company might have to pay PAYE (on your behalf) and NI, but that depends on the salary you pay yourself (if your accountant is any good he will likely recommend a low salary and then taking dividends to minimise tax liability)

RoxieW wrote: »

I then don't need to worry about registering for VAT until my total sales exceed £79k in this tax year? It then seems that paying a flat rate of 10 per cent and charging VAT to customers will be the best way forward for me as I purposely keep my expenses very low by working from home instead of an office, and employing freelancers rather than on payroll.

If you do manage to get the 10/11% flat rate then you could probably afford to cut your prices to your customers (just pass on the 11% you need, rather than them having to pay 20% on top of your current charges). It won't matter to them if they are VAT registered themselves as they would be reclaiming the VAT they pay you, but if you deal with a lot of small companies it will avoid pricing yourself out of the market compared with smaller providers.

AbbieCadabra

some Limited co. basic info here for you