Self Employed or Limited?

[Spazz]

The big question I have at the moment is do I stay S/E or go limited?

This is the situation:
Poor Credit Score
No chance of credit with suppliers (staying S/E)
Partner has some debts (which have now been joined to us both)
Going through court action at the moment for custody of my children (not going into detail)
Renting a flat
Van and Tools Owned outright

 

[SPARTYKUS]

Hello Nick, Nick here

I went Limited 4.5 years ago. I was scare mongered into it and it seemed a good idea at the time, limited liability if anything goes wrong, etc etc. But I didn't want to do the (more complicated) accounts. Up tillthem I did all my own accounts and self assessment returns for 10 years.

The cost of the accountant has been enourmous. Maybe 800+ a year. And he's a good bloke and got me loads of work.... but at the moment I am only part time so the accountancy bill has suddenly become the biggest single cost to me each year!

Now I believe you can do it yourself as a limited company (not when its a large company making millions). There is confusion over this but the general rule I am getting is .... you can do it. But its more complicated. I plan to this year. If I can stay away from the beer fridge.

So on the plus side of Sole Trading, accounts are easy and cost ... nowt but if it really went t*ts up, your house, your wifes car, everything is linked to the thing thats gone t*ts up.

Whereas Limited .... it isn't. For example your house will not have to be sold to pay for the compensation someone is successfully sueing you for. (a bit of a fabricated longshot but ....)

Apparently there may be a tax advantage if limited too, but only if you're making loads.... Taxes are taxes ... not really a way round them

just a few thoughts typing fast, looking after kids (my MAIN job, electricianising is just a hobby !!!)

 

[needasparks]

Don't think your credit will get better by going Ltd at wholesalers as your score would be even lower as you can't get chased for the money.
On that score you would be better using a small wholesaler as much as you can and pay over the counter for them to get to know you, keep asking for quotes on as much as you can,even if you don't get it from them this brings you nto their attention and think they may be losing work and more likely to get an account off the back of it, once you have them you can get one elsewhere off the back of it.
With regards to s/e or Ltd alot will depend on your turnover and profit/loss and only your accountant can advise on this which would be better for you. have a chat to them or if your doing your returns yourself go and see one you do need one, anyone thinking their saving money not having one needs to know all the things you could be claiming for as you may be missing on loads.
If your one-man-band and low turnover I would think self employed would be better for tax reasons and claiming,

 

[Spazz]

Thanks for your advice.

I have a cash account with CEF as they are the closest to me - get the same rate but cash on collection of parts.
I have a ridiculous low credit score - I merged my credit with my partner a few years back - worst thing I did!

I dont have an account at the moment, so cant go to them!

The thing that spartykus said about doing your own accounts when your limited is a new for me - so will look a bit more into that as the account is the only thing pushing me away from the limited at the moment.


My turnover: £20K per year
My Profit: £10K per year

I am not expecting to make much as mine and my partners disposable income must be below £8K to get legal aid.

Legal costs already upto £69K each but expecting them to go to £100K each before this is all sorted out!

As you may guess I am not working much at all (new start up in Jan) hence why I was thinking of going limited so I could sign off as much as I can as in fuel, etc and pay myself a low wage if I get a bit ore work in and starting to go over the £8K limit.

Anyone else in a similar situation who has already made their mind up would be great to hear from

 

[needasparks]

What you should take on board with Ltd is you may well be paying yourself a low wage but the company still has to pay tax also, so you don't get away with it. If you start to spend the company money because you don't earn enough(pay yourself) then you will be charged tax on all the money you draw over your wages as you are effectively borrowing money from the company without being taxed on it.
Hope that makes sense.

 

[Spazz]

I know exactly what you mean but at the moment tax is the least of my worries.

Final hearing is in September/October this year so untill the I need to keep my income to the bear minimum - after that I can increase my wages as I wont have legal aid - reducing the tax the business has to pay.

As the personal allowance is £8,2K I could pay myself just over and have a low tax bill come new year.


Out of interest does a ltd company have to have an employee or could I be contracted by the business to run it (on a S/E basis) meaning I do my own tax? - just a though

 

[needasparks]

I think you should just remember HMCR are not idiots and a company has to have a director that is paid so you won't escape his claws.
Thing is being paid only 8K even they know you can't survive on that so you will get inspected bigtime.
Ask a Financial pro before you decide mate.

 

[SPARTYKUS]

Nicolas Owen, another thought, I had my first child and was sole trader. No paternity pay.

2nd one i had 2 weeks off & got £216 quid off t'government

 

[Spazz]

Thanks needasparks

I need a disposable income of less than £8K.

The things that get taken into account are:
Council Tax
Rent
Personal allowance (£300 per month)

All these get taken off the income of the household and that is the disposable income - must be less than £8K.


All the financial Pros around here charge and I cant afford to go and see them

 

[Spazz]

Nicolas Owen, another thought, I had my first child and was sole trader. No paternity pay.

2nd one i had 2 weeks off & got £216 quid off t'government

Your lucky -


S/E with my 1st - no Paternity Pay
Employed for my 2nd - no paternity pay - back to work within 48hrs of him being born - just started a new job and the employer was a b******

 

[SPARTYKUS]

Your lucky -


S/E with my 1st - no Paternity Pay
Employed for my 2nd - no paternity pay - back to work within 48hrs of him being born - just started a new job and the employer was a b******

But the third ..... :crazy:

 

[mo the test]

you do not earn enough to consider going limited at this stage of your development. Firstly as an ex chartered accountant let me say that without knowing all your financial details it is impossible to give completely accurate advice, however you do not appear to have visible assets apart from your vehicle so you are safe from them being stripped from you if a job was to go t**s up. No court would deprive you of the means to work and with your current legal bills it would appear that you do not have sufficent funds to pay a settlement. It is possible to complete your own accounts but they must be audited properly and that would be more expensive than using a competent accountant in the first place. So if you are worried about accounts leave it to the expertsIt would appear best to remain S/E until such time you have more time to devote to being an sparks and you have more assets to speak of, the S/E tax is very easy to complete and would cost you nothing. good luck.

 

[sambotc]

Hi mate,

Just started a business myself so think I may be able to answer a few questions as I asked all the same to 3 different accountants.

If you are not clearing £20k + a year profit, you will lose out going ltd due to increased costs

going ltd in the current climate does not give you any extra security as to liability as most (all) creditors will require a guarantor meaning your just as liable, to many were bitten by company liquidating and losing money in the process.

A ltd company is a separate entity so the company itself pays corporation tax, then you pay tax on your earnings that you draw from the company, so you'll lose out.

You'd be better of losing the money in other ways, than throwing it at the tax man and your accountant. Why don't you consider taking on an apprentice, you can pay him whatever and you'll be doing a young lad a favour at the same time, not to mention someone to pass you a few tools?

Or failing that, you could pay someone like your misses to do your bookkeeping or something else legitimate, or a family member that may give you it back at a later date etc?

 

[Spazz]

you do not earn enough to consider going limited at this stage of your development. Firstly as an ex chartered accountant let me say that without knowing all your financial details it is impossible to give completely accurate advice, however you do not appear to have visible assets apart from your vehicle so you are safe from them being stripped from you if a job was to go t**s up. No court would deprive you of the means to work and with your current legal bills it would appear that you do not have sufficent funds to pay a settlement. It is possible to complete your own accounts but they must be audited properly and that would be more expensive than using a competent accountant in the first place. So if you are worried about accounts leave it to the expertsIt would appear best to remain S/E until such time you have more time to devote to being an sparks and you have more assets to speak of, the S/E tax is very easy to complete and would cost you nothing. good luck.

Thanks mo the test - best advice

You are right the only assets I is the van (£1,000 worth) and the car (£10,000 worth) as well as all my tools (£1,000 worth) and my IT equipment (about £800 worth)
So £13K in total - nothing compared to most others on here and in the trade.

I have just been given a plot (not in my name and not going in my name (in my brothers name at present) - it was to offset death tax of my grandfather who is expected to go within the next 7 years so hes given all his assets away to the grandkids - mine in my brothers name because of the legal aid situation) was thinking of starting building on it in the next few months - self build. I done this before a few years back but not sure if I can afford to do it till new year.

Im happy to discuss the situation with u mo, but I think you have it down to a T at the moment - I will stay S/E - thanks for the advice!

 

[Spazz]

Hi mate,

Just started a business myself so think I may be able to answer a few questions as I asked all the same to 3 different accountants.

If you are not clearing £20k + a year profit, you will lose out going ltd due to increased costs

going ltd in the current climate does not give you any extra security as to liability as most (all) creditors will require a guarantor meaning your just as liable, to many were bitten by company liquidating and losing money in the process.

A ltd company is a separate entity so the company itself pays corporation tax, then you pay tax on your earnings that you draw from the company, so you'll lose out.

You'd be better of losing the money in other ways, than throwing it at the tax man and your accountant. Why don't you consider taking on an apprentice, you can pay him whatever and you'll be doing a young lad a favour at the same time, not to mention someone to pass you a few tools?

Or failing that, you could pay someone like your misses to do your bookkeeping or something else legitimate, or a family member that may give you it back at a later date etc?

Thanks sambotc

Great advice again!
As said above my income is below £10K per year so I cant aford to pay anyone - misses not fit to do the books anyway!
I also dont have enough work to even think about employing anyone - if I ever need a hand I have a mate who is S/E who I call on - cheap wages as hes on the dole so usually below min wage just to give him some extra cash in his pocket more than anything - I know hes S/E I already checked.

Thanks again - making me think harder bout staying S/E

 

[alarm man]

well taking away the kids situation which must be a hard thing to go thru,id thought of doing it years ago but its a minefield,the fact your claiming/massaging your income to get legal aid,while you have a plot to do a self build in the future..you will be better of than most long term...

 

[DurhamSparky]

i changed to LTD this financial year!!

couple of reasons..

i have 2 staff...
i have 2 propertys that i don't want to loose... (well maybe 1 would not be a miss)
my van and tools are owned by me then leased to company
i needed to seperate my own dealings and company dealings...

if it goes wrong i will walk away...!

 

[Steve_P]

The decider for me is based on turnover.

I have a LTD company for another business but am currently not putting my electrical business through it. There are good tax savings going limited (like you hardly pay any) but unless your profit is more than 20k it'll cost you more than is saves.

 

[sythai]

Just recently changed from SE to Ltd also.... initially for tax reasons, my accountant fees remain the same which is good. Still trying to get my head round it all...

my van and tools are owned by me then leased to company

How does that work then - thanks Sy ?

​

 

[paulgw]

Apologies for a reasonably long first post and raking up an old(ish) thread but I am currently looking at a career change and becoming an electrician and have decided to go the limited company route for the business plan, however some of the advice I have been given by accountants, HMRC and companies house varies considerably from some of what has been said above, so I would be interested in people’s views on my current understanding and reality.

The advice I have been given is that if you have significant private assets then limited co status protects these should the worst happen and you are personally sued for negligence etc (company will have prof indemnity insurance). It should not be considered as an option to avoid paying day to day creditors, as someone above pointed out a new company would require some form of guarantor in place to get a sizeable credit line anyway.

The accounts can be completed /filed by the company themselves and under the small company’s exemption do not need to be fully audited (goal posts are more than 50 employees and turnover in the millions or assets in the millions) and therefore you don't need an accountant if you don’t want one. In my research on these topics I found out my father’s company (consultancy business) could be flat rate VAT registered and potential paying tens of thousands of pounds less in tax to HMRC - something his £1,000 a year accountant has failed to spot for several years - co-incidentally the flat rate VAT registration would mean less work for the accountant and my father in producing the accounts.... My current thinking is that flat rate doesn’t look attractive for an electricians business due to volume of purchasing, but interested what others are doing?

In terms of income tax - as a limited company most people I talk to recommend the route of paying a salary equal to the tax free earnings threshold and then paying any additional profits as dividends - the company will pay corporation tax on the profits but the first 20odd K of dividend is then free of personal taxation due to a 10% rebate. Also shareholders don't have to be employees, they only have to be over a certain age, so wives etc can be shareholders and receive dividends under the same conditions.

One of the other things I have read a lot of discussion on relates to company registered addresses and the implications if you use your own address - plenty of stuff on this on contracting forums - but for 50 quid a year there are plenty of companies that will sell you the use of their office address and space on the wall for the plaque - This is what I plan to do, has anyone had bad experiences doing this??

I would also be interested in how the leasing of tools and van works as I currently plan to privately buy the van and charge the company 45p per mile in mileage as allowed under AMRA as an expense. My current tools will be sold into the company using prices found on somewhere like ebay - the prices I charge the company have to be seen to be realistic i.e. I can't charge the company 2K for a 3 year old Makita drill!! I was told that any money I made leasing things to the company would need to appear on my personal tax bill and would be pretty obvious to HMRC from the company accounts so there was no realistic way to hide it but interested to hear how it works in practice?

Before anyone decides to flame me for being a career changer going the Electrical Trainee route I will point out that I have an HND in Electrical engineering plus a Degree in Electrical and Electronic and in addition to having spent the last 17 years in a technical electronic engineering role I have also spent the last 8 years renovating properties in my spare time including full house rewires that have sailed through inspection by LABC / qualified electricians.

Thanks

Paul