Sole trader vs Ltd Co. advice

E11btt

I may need to become a freelance consultant working to provide a single item of consultancy work (lets say a specialist IT service only with no hardware related service) contracted with multiple agencies who provide me with client work.  I have been a ltd co. previously and it was far too much complex paperwork for simply invoicing the agency for the client work. I have no overheads, I work with just a laptop. Sometimes there is travel internationally, but my client/agency reimburses most of those expenses. Also, I plan to work around 90hrs a month. I plan to use an accounting software like Ember or FreeAgent. For such a consulting type of work would it be still beneficial to become Ltd. Co. or is sole trader satisfactory? I obviously want to save tax, but if there is not a huge saving difference between the two I would rather go for the less paperwork/admin approach with ST or am I missing something vital?

DullGreyGuy

I would have thought most would refuse to engage with you as a sole trader as it opens them and the end client up to being legally seen as your employer and so you get rights to paid sick leave, holiday etc. By being incorporated there can be the issue of IR35 but not one of you being their employee.

There is the alternative of using an umbrella rather than being a sole trader or Ltd, their monthly charges are relatively small if you are on a decent IT day rate and all your money comes in as PAYE and so no needing accounting software etc.

I'd speak to some of the agencies you were considering and see if they will entertain sole traders or if they insist on another route

SensibleSarah

I'm a sole trader, working with multiple agencies (marketing, rather than IT, in my case) and therefore for their clients. It's incredibly simple from my point of view - no real overheads either. No danger of me being seen as an employee because I have multiple clients - although there are no actual 'contracts' in place for me - just a gentleman's agreement over a certain number of days/hours per month with each agency on an ongoing basis. 
Simple monthly invoices for each agency - very little paperwork and I genuinely like doing my own accounts. 
The tax saving for ST vs LTD will mainly depend on your profit level/tax bands. For me, the difference is fairly negligible currently, so I'm happy to take a slightly less tax efficient ST stance and keep things super-simple. If I were paying 40% tax then I might feel differently! 

DullGreyGuy

SensibleSarah said:
No danger of me being seen as an employee because I have multiple clients

Multiple clients doesnt protect the agencies from you being considered an employee, there are people out there with 3+ employers 

Just look at Uber, their formally self employed drivers who had dozens of different clients a day now get sick pay and holiday as they were determined not to be self employed.

Mistral001

I was a consultant for 25 years.  I mostly worked alone but occasionally employed people.  I worked for some very big companies and had private clients as well.   When I started as a sole trader there would be companies who actually refused to deal with Ltd liability consultants as they were seen as a risk because limited liability means exactly what it says.  If you have no overheads, no supliers and have PI insurance, or other insurances you think are necessary, there is little  risk to your personal savings or property so limiting liablity can hardly be factor in chosing a Ltd Co. set up. 

There is a trend now for people who would nornally work as sole traders to set up Ltd Companies.  I believe that there can be a tax avoidance advantage to this and also I think if  companies wanting to take on suppliers of services can more-easily do due diligence on a Ltd Co. than they can with a sole trader business.   However, the due diligence aspect is a little suspect as Companies House, apart from checking that the name of the Ltd company is unique, do little or no checks on whether any of the information given to them when setting up the Ltd comany is correct. Note tax avoidance is legal, but many people are unhappy with it. 

PS.  One other aspect of a Ltd Company that might make a difference to you going down that route is that details of your business finances are available for anybody to view if you form a Ltd Co. 

DullGreyGuy

Mistral001 said:

I was a consultant for 25 years.  I mostly worked alone but occasionally employed people.  I worked for some very big companies and had private clients as well.   When I started as a sole trader there would be companies who actually refused to deal with Ltd liability consultants as they were seen as a risk because limited liability means exactly what it says.  If you have no overheads, no supliers and have PI insurance, or other insurances you think are necessary, there is little  risk to your personal savings or property so limiting liablity can hardly be factor in chosing a Ltd Co. set up. 

There is a trend now for people who would nornally work as sole traders to set up Ltd Companies.  I believe that there can be a tax avoidance advantage to this and also I think if  companies wanting to take on suppliers of services can more-easily do due diligence on a Ltd Co. than they can with a sole trader business.   However, the due diligence aspect is a little suspect as Companies House, apart from checking that the name of the Ltd company is unique, do little or no checks on whether any of the information given to them when setting up the Ltd comany is correct. Note tax avoidance is legal, but many people are unhappy with it. 

PS.  One other aspect of a Ltd Company that might make a difference to you going down that route is that details of your business finances are available for anybody to view if you form a Ltd Co. 

How do they deal with their employees then given they wont even have the PI insurance to fall back on? 

In FS, the only industry I can talk about with any significant experience, you wont get employed as a sole trader but pushed to an umbrella. 

As a micro business less of your finance are visible but the fact you've a stable balance sheet etc should give your clients (and potentially lenders) comfort not concern.  You could in theory go the way that Martin did and form an unlimited company which then addresses the concern of your former clients had and also means your financial records arent public.

Other than Martin Lewis wanting to hide the £30m or so profit he was making from MSE each year I havent seen many unlimited companies for obvious reasons. 

Mistral001

DullGreyGuy said:

Mistral001 said:

I was a consultant for 25 years.  I mostly worked alone but occasionally employed people.  I worked for some very big companies and had private clients as well.   When I started as a sole trader there would be companies who actually refused to deal with Ltd liability consultants as they were seen as a risk because limited liability means exactly what it says.  If you have no overheads, no supliers and have PI insurance, or other insurances you think are necessary, there is little  risk to your personal savings or property so limiting liablity can hardly be factor in chosing a Ltd Co. set up. 

There is a trend now for people who would nornally work as sole traders to set up Ltd Companies.  I believe that there can be a tax avoidance advantage to this and also I think if  companies wanting to take on suppliers of services can more-easily do due diligence on a Ltd Co. than they can with a sole trader business.   However, the due diligence aspect is a little suspect as Companies House, apart from checking that the name of the Ltd company is unique, do little or no checks on whether any of the information given to them when setting up the Ltd comany is correct. Note tax avoidance is legal, but many people are unhappy with it. 

PS.  One other aspect of a Ltd Company that might make a difference to you going down that route is that details of your business finances are available for anybody to view if you form a Ltd Co. 

How do they deal with their employees then given they wont even have the PI insurance to fall back on? 

In FS, the only industry I can talk about with any significant experience, you wont get employed as a sole trader but pushed to an umbrella. 

As a micro business less of your finance are visible but the fact you've a stable balance sheet etc should give your clients (and potentially lenders) comfort not concern.  You could in theory go the way that Martin did and form an unlimited company which then addresses the concern of your former clients had and also means your financial records arent public.

Other than Martin Lewis wanting to hide the £30m or so profit he was making from MSE each year I havent seen many unlimited companies for obvious reasons. 

 The PI insurance is given to the business whether there is only one person in that business or dozens so all employees will be covered.  BTW the "sole" in sole trader only refers a sole person being personally responsible for all financial responsibilities of that business and not the number of people in the business.   Some sole trader businesses have hundreds of employees.

DullGreyGuy

Mistral001 said:

DullGreyGuy said:

Mistral001 said:

I was a consultant for 25 years.  I mostly worked alone but occasionally employed people.  I worked for some very big companies and had private clients as well.   When I started as a sole trader there would be companies who actually refused to deal with Ltd liability consultants as they were seen as a risk because limited liability means exactly what it says.  If you have no overheads, no supliers and have PI insurance, or other insurances you think are necessary, there is little  risk to your personal savings or property so limiting liablity can hardly be factor in chosing a Ltd Co. set up. 

There is a trend now for people who would nornally work as sole traders to set up Ltd Companies.  I believe that there can be a tax avoidance advantage to this and also I think if  companies wanting to take on suppliers of services can more-easily do due diligence on a Ltd Co. than they can with a sole trader business.   However, the due diligence aspect is a little suspect as Companies House, apart from checking that the name of the Ltd company is unique, do little or no checks on whether any of the information given to them when setting up the Ltd comany is correct. Note tax avoidance is legal, but many people are unhappy with it. 

PS.  One other aspect of a Ltd Company that might make a difference to you going down that route is that details of your business finances are available for anybody to view if you form a Ltd Co. 

How do they deal with their employees then given they wont even have the PI insurance to fall back on? 

In FS, the only industry I can talk about with any significant experience, you wont get employed as a sole trader but pushed to an umbrella. 

As a micro business less of your finance are visible but the fact you've a stable balance sheet etc should give your clients (and potentially lenders) comfort not concern.  You could in theory go the way that Martin did and form an unlimited company which then addresses the concern of your former clients had and also means your financial records arent public.

Other than Martin Lewis wanting to hide the £30m or so profit he was making from MSE each year I havent seen many unlimited companies for obvious reasons. 

 The PI insurance is given to the business whether there is only one person in that business or dozens so all employees will be covered.  BTW the "sole" in sole trader only refers a sole person being personally responsible for all financial responsibilities of that business and not the number of people in the business.   Some sole trader businesses have hundreds of employees.

Not necessarily, PI can be written in many different ways such that only certain employees or certain areas of a business are covered rather than the whole business... as long as its not illegal and you are willing to pay for it then insurers will ultimately write whatever you want.

I am not however sure how this or the point about a sole trader is related to any of my comments? If an employee was coding a db and misunderstood the business requirements the company couldnt claim off of their PI insurance because that error resulted in them undercharging their customers. If it was a third party contractor (irrespective of sole trader, LTD, umbrella etc) then the business could attempt recovery from the contractor and their PI insurance most likely would respond (obv irrespective of structure they'd defend the claim saying sys test/UAT etc should have caught the error)

Mistral001

This mix and match way of getting insurance seems to be far too clever by half.  It might save a bit of money compared to getting one single policy covering employer and all employees, but you pay for what you get and the value for money of your PII is usually only fully realised when you have a make a claim.  Some insurers are better payers than others, despite what some insurer sales people might tell you. 

Regarding contractors, obviously that is something that has to be done carefully.  I actually did some sub-consultancy work for another consultant during my time as a sole trader consultant.  I had my own PII and would not have gotten the work if I did not have this PII.  I have never come across an employee having to have their own PII, but I suppose it could happen.  It might make for an interesting job interview though.

DullGreyGuy

Mistral001 said:

This mix and match way of getting insurance seems to be far too clever by half.  It might save a bit of money compared to getting one single policy covering employer and all employees, but you pay for what you get and the value for money of your PII is usually only fully realised when you have a make a claim.  Some insurers are better payers than others, despite what some insurer sales people might tell you. 

Regarding contractors, obviously that is something that has to be done carefully.  I actually did some sub-consultancy work for another consultant during my time as a sole trader consultant.  I had my own PII and would not have gotten the work if I did not have this PII.  I have never come across an employee having to have their own PII, but I suppose it could happen.  It might make for an interesting job interview though.

An employee wouldnt have PI and whilst a contract of employment can allow employers to reduce salary for errors etc it cant go below minimum wage and realistically an employee could cost a company millions which would never be gotten back. Hence it seems very odd that a company would be accepting of that fact but not be comfortable hiring a contractor via a LTD with PI because the contractor themselves dont have enough skin in the game so may be lax. The risk a sole trader turns round and tries to assert they are actually workers and so entitled to sick pay/holiday etc is much higher (eg Uber)

If you think a company deciding it only needs PI for one of its business activities and not the others is too clever you really want to avoid loss sensitive insurance, captive insurers/reinsurers, multinational insurance with DIL/DIC and the vast array of other options that exist for corporates 

Mistral001

DullGreyGuy said:

Mistral001 said:

This mix and match way of getting insurance seems to be far too clever by half.  It might save a bit of money compared to getting one single policy covering employer and all employees, but you pay for what you get and the value for money of your PII is usually only fully realised when you have a make a claim.  Some insurers are better payers than others, despite what some insurer sales people might tell you. 

Regarding contractors, obviously that is something that has to be done carefully.  I actually did some sub-consultancy work for another consultant during my time as a sole trader consultant.  I had my own PII and would not have gotten the work if I did not have this PII.  I have never come across an employee having to have their own PII, but I suppose it could happen.  It might make for an interesting job interview though.

An employee wouldnt have PI and whilst a contract of employment can allow employers to reduce salary for errors etc it cant go below minimum wage and realistically an employee could cost a company millions which would never be gotten back. Hence it seems very odd that a company would be accepting of that fact but not be comfortable hiring a contractor via a LTD with PI because the contractor themselves dont have enough skin in the game so may be lax. The risk a sole trader turns round and tries to assert they are actually workers and so entitled to sick pay/holiday etc is much higher (eg Uber)

If you think a company deciding it only needs PI for one of its business activities and not the others is too clever you really want to avoid loss sensitive insurance, captive insurers/reinsurers, multinational insurance with DIL/DIC and the vast array of other options that exist for corporates 

You seem to be still assuming that a sole trader only applies to people who run a business on their own with no other people working for them.  Hey ho.