Ltd Company V Sole Trader
SarahLu
Posts: 118 Forumite
Hi,
My sister currently runs a business doing inventories for rental properties and I do some basic book keeping for her. I am also self employed as a sole trader in another line of work.
Neither of us really understands the implications of being a Ltd company, it was something my sister was advised to do when she started the business in case it grew. I find that in comparison to mine as a sole trader, her business accounts are really confusing as I don't really understand director's loans, dividends etc and neither does she, so come the end of the tax year it has been known to cause us quite a bit of stress
My question is, would there be any downside to her switching to be a sole trader? I think this would be much simpler for her and while she might pay a bit more tax, she would save lots in accountants fees. She doesn't employ anyone and has no plans to, so this wouldn't be a problem. Would switching to sole trader be a bad idea?
Thank you
My sister currently runs a business doing inventories for rental properties and I do some basic book keeping for her. I am also self employed as a sole trader in another line of work.
Neither of us really understands the implications of being a Ltd company, it was something my sister was advised to do when she started the business in case it grew. I find that in comparison to mine as a sole trader, her business accounts are really confusing as I don't really understand director's loans, dividends etc and neither does she, so come the end of the tax year it has been known to cause us quite a bit of stress
My question is, would there be any downside to her switching to be a sole trader? I think this would be much simpler for her and while she might pay a bit more tax, she would save lots in accountants fees. She doesn't employ anyone and has no plans to, so this wouldn't be a problem. Would switching to sole trader be a bad idea?
Thank you
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Comments
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who is doing what?
you mention both your failure to understand accounts and at the same time the possible existence of an accountant doing her company for her? What training/qualifications have you had as a bookkeeper able to do sole trade accounts?
the business case for un incorporating comes down to the numbers, which you have not given.
Presumably whoever advised her to incorporate in the first place failed to do a comparison of the two statuses so she could make an informed decision (or was it driven purely by fees they could charge)?0 -
Hi,
My sister currently runs a business doing inventories for rental properties and I do some basic book keeping for her. I am also self employed as a sole trader in another line of work.
Neither of us really understands the implications of being a Ltd company, it was something my sister was advised to do when she started the business in case it grew. I find that in comparison to mine as a sole trader, her business accounts are really confusing as I don't really understand director's loans, dividends etc and neither does she, so come the end of the tax year it has been known to cause us quite a bit of stress
My question is, would there be any downside to her switching to be a sole trader? I think this would be much simpler for her and while she might pay a bit more tax, she would save lots in accountants fees. She doesn't employ anyone and has no plans to, so this wouldn't be a problem. Would switching to sole trader be a bad idea?
Thank you
The fundamental downside of not working under the protection of a limited company is that you dont benefit from the limited liability such a company offers.
As for accountant fees, there really shouldn't be too much difference in them between a one man/woman company and a one man/woman sole trader for a simple, straightforward business. The accounts are not that different. Whilst in the past, accountants would often charge more for a limited company where you asked them to file accounts both with CH and HMRC, nowdays you can make a combined submission.
But her accountant should be advising her what is best for her. If not, she should find a new accountant.0 -
Hello, thanks for your reply.who is doing what?
My sister does everything to do with the business, I just compile a basic spreadsheet showing her income/outgoings and categorising them which goes to the accountant.you mention both your failure to understand accounts and at the same time the possible existence of an accountant doing her company for her?
Yes, she has an accountant who does most of the work based on the basic spreadsheet that I provide. But I still feel it is good to have some understanding of what is going on and the accountant isn't really forthcoming at explaining things clearly.What training/qualifications have you had as a bookkeeper able to do sole trade accounts?
No formal training but I have been successfully doing this for myself for 5+ years and I'm confident I can do the same for this business too, but even if she used someone else I assume the fees would be significantly less than her accountant (£1200 last year).the business case for un incorporating comes down to the numbers, which you have not given.
Happy to provide any information that will help. Last year for example the business took £31,650 and she personally drew just under 20k from that. Do let me know if there's anything else I can provide.Presumably whoever advised her to incorporate in the first place failed to do a comparison of the two statuses so she could make an informed decision (or was it driven purely by fees they could charge)?
I think they advised it based on the possibility that she might want to grow and potentially employ someone in future, but that isn't going to be the case now. I do think the fees played a part too.0 -
There are a lot of factors to consider when deciding on the sole trader versus limited company issue. Obviously, there's the numbers, i.e. profit level, but also risk & limited liability, assets/loans, the individual's personal financial circumstances, car/mileage, equipment, etc.
As for accountancy fees, the gap is narrowing for very simple limited companies as opposed to sole trader as long as book-keeping is good. 20 years ago, when I started my practice, the amount of extra work was substantial, and we'd charge maybe 3 times the price as against a comparable sole trader, but now, if there's no payroll, for a simple limited company where all profits are paid out as dividends, our fees are virtually the same - just a little extra for the extra time such as the extra tax return and companies house confirmation statement.
If the OP's accountant is charging 2 or 3 times the price they'd charge for a similar sole trader, then something is wrong, either the book-keeping is failing or they're taking the mickey and overcharging.0 -
The fundamental downside of not working under the protection of a limited company is that you dont benefit from the limited liability such a company offers.
As for accountant fees, there really shouldn't be too much difference in them between a one man/woman company and a one man/woman sole trader for a simple, straightforward business. The accounts are not that different. Whilst in the past, accountants would often charge more for a limited company where you asked them to file accounts both with CH and HMRC, nowdays you can make a combined submission.
But her accountant should be advising her what is best for her. If not, she should find a new accountant.
Thank you, sorry if its a silly question but what is meant by limited liability?
I don't know if this is unusual but I have been completing my own self assessment for 5 years now and never used an accountant. I was thinking of continuing to keep her records the way I currently do and then submitting her self assessment for her (as I do for myself). Am I missing something really important here? I obviously want to do things properly.0 -
There are a lot of factors to consider when deciding on the sole trader versus limited company issue. Obviously, there's the numbers, i.e. profit level, but also risk & limited liability, assets/loans, the individual's personal financial circumstances, car/mileage, equipment, etc.
As for accountancy fees, the gap is narrowing for very simple limited companies as opposed to sole trader as long as book-keeping is good. 20 years ago, when I started my practice, the amount of extra work was substantial, and we'd charge maybe 3 times the price as against a comparable sole trader, but now, if there's no payroll, for a simple limited company where all profits are paid out as dividends, our fees are virtually the same - just a little extra for the extra time such as the extra tax return and companies house confirmation statement.
If the OP's accountant is charging 2 or 3 times the price they'd charge for a similar sole trader, then something is wrong, either the book-keeping is failing or they're taking the mickey and overcharging.
I'm not sure what they would charge for a sole trader but it would probably be worth her speaking to them and getting a comparison, thanks.0 -
Thank you, sorry if its a silly question but what is meant by limited liability?
I don't know if this is unusual but I have been completing my own self assessment for 5 years now and never used an accountant. I was thinking of continuing to keep her records the way I currently do and then submitting her self assessment for her (as I do for myself). Am I missing something really important here? I obviously want to do things properly.
It means her (financial) liability is limited should someone make a claim.
Whilst you could potentially lose the shirt, or blouse, off your back, the most she could usually lose is the £1 or so she has invested into the company in the way of purchasing however many shares she has purchased.
It's not unusual for a single person sole trader to compile their own accounts and file them with HMRC.
Neither is it unusual for a single person limited company to compile accounts and file them with CH & HMRC.0 -
It means her (financial) liability is limited should someone make a claim.
Whilst you could potentially lose the shirt, or blouse, off your back, the most she could usually lose is the £1 or so she has invested into the company in the way of purchasing however many shares she has purchased.
I see, thank you. Is that something that could be covered by insurance if she were to become a sole trader? She does currency pay for business insurance but I'm not sure what is covered.0 -
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fenwick458 wrote: »I was under the impression you had to get an accountant to do that?
Not that I am aware of.
But in the event you are correct, anyone can call themselves an accountant
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