Self Employed or Limited Company?

Strikeman

Apologies if this is in the wrong section



My partner is a qualified counsellor and is looking to set up in private practice, charging by the hour in a room she intends to rent on an ad-hoc basis from a local landlord


She currently has employment 4 days a week (Mon-Tues-Thurs-Fri) in a completely unrelated line of work and is intending to fill up some of her Wednesdays with these private counselling sessions


This means she does already have an income of £16,000 pa over this 4-day week, giving her a take home of circa £1,200 per month. The ultimate long-term goal is for the private counselling to take precence and become full time, however for now, this will be done inconjunction with the existing work and salary





She is therefore looking to either set herself up as self-employed or as a limited company. However given the situation now, and how it will change in the future, we arent sure which one is right for her? After doing some initial research, we think self-employed is the way to go but as we've never done this before, we didnt want to miss a trick with exploring other options if they have better tax implications...

00ec25

4 days /week @£16k means her personal allowance is used up in full on her employment income

a company would be more tax efficient as she would then take her profits as dividends taxed at 7.5% in contrast to self employed profits taxed at 20%

HOWEVER, whether she can find an accountant prepared to do her company accounts at a fee which means she is overall better off is down to her to find out

Strikeman

00ec25 wrote: »

4 days /week @£16k means her personal allowance is used up in full on her employment income

a company would be more tax efficient as she would then take her profits as dividends taxed at 7.5% in contrast to self employed profits taxed at 20%

HOWEVER, whether she can find an accountant prepared to do her company accounts at a fee which means she is overall better off is down to her to find out

Yes I think you're right given the low scale nature (at the beginning) and the salary running the background, the cost of an accountant seems to push us towards Self-Employed

Strikeman

00ec25

whatever website you are using is giving a misleading result if you are ignoring the 0% dividend tax band out of ignorance

dividend tax £48.68 net income = 2,600.32

why do you think the SE can do accounts when the Ltd cannot?

Pennywise

Where's the 19% corporation tax on the company profits being provided in the limited company model?

Mistral001

Setting up as a ltd company has lots of down sides especially with someone providing a professional service such as a counsellor.

Firstly clients will want to be assured that they are dealing with a person and that that person is interested in them as a person. If the counsellor has a ltd company they must note the name of the Ltd company on all correspondence with their clients and that could harm the personal approach image that the counsellor will probably want to promote.

Secondly, financial details of the Ltd company are published by Companies House and can be seen by any member of the public who has an internet connection.

Thirdly, the purpose of forming an Ltd company is so that the directors of the company will have limited personal liability in their business dealings. Many prospective clients know this basic fact and will be put off going to a professional who has a Ltd company.

nmn

Mistral001 wrote: »

Secondly, financial details of the Ltd company are published by Companies House and can be seen by any member of the public who has an internet connection.

Minimal financial details need to be published for small companies... It's basically two numbers only - the companys assets and how much you (the company) owe. I don't know why that would be a bad thing, unless you (the company) have something significant to hide.



As has been stated already the SE need to do accounts just as much as ltd companies and there's no need to pay for an accountant to do either if you are capable of keeping records yourself - its more or less the same.


Limited companies do still have some small benefits, qualifying donations to charity are more tax efficient than paying yourself a salary and then using gift aid. Pensions contributions are likewise. Both for the same reason that National Insurance is paid and not reclaimed through the giftaid (or salary -> pension) approach, but is never paid when its a corporate donation (or employer contribution). Plus, you can legitimately have an annual booze up completely tax free spending up to £100/head (that is for all attendees - they don't even all have to be employees/shareholders/directors)!


The final point by the above poster - that limited is short for limited liability, and somehow that will put customers off - seems fairly spurious, I'm not exactly sure what evidence they have for such opinion.


If you're renting from a landlord, this is important. If your business falls onto hard times, and/or the business runs up rent arrears (as it might if your client base dries up for whatever reason or initially rent more space than you immediately need); you create a corporate veil when trading as a limited company. That means any debt the company has shouldn't end up being demanded from you personally. The worst than happens is the company folds - your own savings, family, house and assets are all safe.


So not only is it almost always still tax efficient for profitable businesses (if only for the xmas party allowance initially, but if you aim to grow the bus. it will absolutely be worthwhile when/if successful), but also highly beneficial if your business doesn't do so well.

Manxman_in_exile

nmn wrote: »

The final point by the above poster - that limited is short for limited liability, and somehow that will put customers off - seems fairly spurious, I'm not exactly sure what evidence they have for such opinion.
QUOTE]


As a former NHS manager in a mental health trust it would put me off...


There are many different types of "qualified counsellor". Will your partner's professional body allow them to practise as a limited company in the first place?

Strikeman

00ec25 wrote: »

whatever website you are using is giving a misleading result if you are ignoring the 0% dividend tax band out of ignorance

dividend tax £48.68 net income = 2,600.32

why do you think the SE can do accounts when the Ltd cannot?

I was unaware there was a 0% dividend tax band so thankyou for this information! I had also assumed that an accountant would be mandatory for a Ltd company (not sure why? impartiality maybe) so had assumed an accountant would be needed for Ltd and not needed for SE



Told you we are newbies at this...:o

Strikeman

Updates
- accountant removed for both scenarios for comparison fairness

- corporation tax included @ 19% for ltd, 0% for SE