Going Ltd?

Mistral001

chalkie99 wrote: »

Congratulations on what looks like a very successful enterprise.

I would agree with that.

As many have said, it is you VAT situation which seems to be the crucial one here.

It looks like you have a big choice to make. You probably are heading towards having to charge VAT and becoming registered for it unless you take steps to to reduce your workload which you cannot do without permanently losing valued clients and potential clients that you might need at some future date if there is a downturn. Charging VAT, as you have pointed out, will mean that you will become less competitive, but only with the clients who are not VAT registered It will make no difference to the clients who are VAT registered as obviously they can claim back the VAT.

WHA

Mistral001 wrote: »

It will make no difference to the clients who are VAT registered as obviously they can claim back the VAT.

Don't underestimate the number of business who can't reclaim the VAT even if they are VAT regsitered, such as those who are under the partially exempt rules, or those on the flat rate scheme.

It's not just a matter of whether your clients are VAT registered or not, you have to consider whether they'd be able to reclaim the VAT or not, which will mainly depend on the type of client. If you're dealing with relatively small businesses, then the flat rate scheme may be a big influence. If your clients are typically larger organisations involved in education or healthcare, then partial exemption may have an impact.

So it's not just whether they're VAT registered or not - it's whether they could reclaim the VAT you charge them.

Mistral001

WHA wrote: »

Don't underestimate the number of business who can't reclaim the VAT even if they are VAT regsitered, such as those who are under the partially exempt rules, or those on the flat rate scheme.
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Good points, but how can you find out which VAT scheme prospective clients are on? Would prospective clients give out such information? I am thinking mainly of the flate-rate scheme in particular.

RoxieW

Thank you for the replies. It seems that my business is reaching an important crossroads - I need to think carefully about the next step.

RoxieW

Seriously - what would other business pros on here do in my position? I'm not greedy and I don't want my life to be overtaken by admin and worrying about financial matters. I'm a writer at heart, not a business brain. I'm thinking maybe go Ltd but keep things under the VAT threshold?

RoxieW

Is anyone running a Ltd company/VAT reg company who can give me an idea of the costs/time involved?

gb12345

RoxieW wrote: »

Seriously - what would other business pros on here do in my position? I'm not greedy and I don't want my life to be overtaken by admin and worrying about financial matters. I'm a writer at heart, not a business brain. I'm thinking maybe go Ltd but keep things under the VAT threshold?

You need to separate the 2 things firstly. As was mentioned before, the VAT will apply regardless of whether you go Ltd or not - so don't factor that into your decision. Also remember that it could be difficult to stay under the threashold if your business grows - do you really wand to be sitting there in Months 10, 11 and 12 turning away business because you don't want to go over the threshold? Might put a lot of clients of you.

As to whether to go Ltd, tax is probably the main driver, so as a comparison a quick calculation for £75000 income with 20000 expenses gives -

Self Emp

Income tax £12,000 ish
Class 2 NI £140 ish
Class 4 NI 3,300 ish
Total £15,500 ish

Ltd Co
Corp Tax £11,000 max

You could then take a salary that is below NI limits, so no income tax or NI would be paid (this would further decrease your Corp Tax as the salary is an expense) and top up with Dividends (keeping total income below HRT limits), so you would have no personal tax liability.

If you are married then your spouse could also receive dividends (depends on their income from other sources) again below HRT limit.

You would obviously need to factor in 80% of your accountant's costs for returns and accounts to see whether you are actually saving anything by going Ltd

gb12345

RoxieW wrote: »

Is anyone running a Ltd company/VAT reg company who can give me an idea of the costs/time involved?

I closed my Ltd companies down a couple of years ago and can't remember how much I used to pay my accountant, but it was under £2,000 to do everything (except VAT).

I did the VAT myself (full returns) and it really wasn't that difficult and I had the added problem of receiving payments from other EU countries as well. I had a spreadsheet that I used to produce my management accounts and I used that to generate the figures that I required for the VAT return, so it probably only took a couple of hours a month doing all the admin required for the company (I actually employed my wife to do it - so that she could get a salary from the company).

RoxieW

"If you are married then your spouse could also receive dividends (depends on their income from other sources) again below HRT limit"

Please could you expand on this further. I am married, yes, and my husband works for an architect's practice (soon to become a self-employed partner but currently salaried at £38k. He also helps me out with keeping records, proof-reading and my 'IT support' as he calls it

I'm sorry, I realise going Ltd and charging VAT are separate - it's just that the VAT part scares me more! All this is very new to me and I'm worried about making expensive mistakes when I work very hard for my income, and have worked very hard to build up to this point.

Mistral001

Ah to stay small or to grow, that is the question? I think you always have to keep growing as a business.

I have read books on "keeping businesses small" but i am not convinced that it can be done without becoming stale. For example, one way of staying small in your case would be to get rid of your freelancers, but do you get fresh ideas and thinking from them that helps you in your own work?