Business status

[billy110]

Hi guys, just going through the process of setting up my own company and have a few basic questions. What are the pros and cons of limited company verses sole trader? As a small company starting out is it worth Vat registering straight away? Thanks in advance

Billy

 

[Pete@HGE]

Billy

spoke to an accountant today, I'm a limited company, he wants £800 +VAT to do the return. If I was a sole trader he'd want £300 + VAT !

He was chatting for an hour, must say most of it went over my head !! It would seem tax payable by you as an individual would be pretty much the same. He explained how a limited company was NOT the answer to avoiding payment of tax (just as easy as a sole trader).

The advantage of a limited company would be if it all goes up against the wall, you lose the company. If a sole trader goes, it's your house and everything else !

If you're not massively strong on the credit rating front (as an individual) a limited company could help here also.

Re VAT, I think the threshold is 60K. If this is your turnover, you MUST register for VAT. If not, you can voluntarily register. If you're tendering for larger contracts with say the council, VAT can be an advantage, if you're doing a small job for Mrs Smith up the road at no. 3, charging her VAT may put her off and so, by not collecting tax for the VAT man could make you more competitive !!

So that's as clear as mud then !!

 

[ian.settle1]

Billy

spoke to an accountant today, I'm a limited company, he wants £800 +VAT to do the return. If I was a sole trader he'd want £300 + VAT !

He was chatting for an hour, must say most of it went over my head !! It would seem tax payable by you as an individual would be pretty much the same. He explained how a limited company was NOT the answer to avoiding payment of tax (just as easy as a sole trader).

The advantage of a limited company would be if it all goes up against the wall, you lose the company. If a sole trader goes, it's your house and everything else !

If you're not massively strong on the credit rating front (as an individual) a limited company could help here also.

Re VAT, I think the threshold is 60K. If this is your turnover, you MUST register for VAT. If not, you can voluntarily register. If you're tendering for larger contracts with say the council, VAT can be an advantage, if you're doing a small job for Mrs Smith up the road at no. 3, charging her VAT may put her off and so, by not collecting tax for the VAT man could make you more competitive !!

So that's as clear as mud then !!

For £500 a year I would go Ltd company rather than lose my home as well as the credit rating.

As long as she doesn't work for HMRC, seen a posting thats £--- for cash we'll forget about the VAT only to be told no we wont I work for HMRC

 

[acat]

Google business link and take the free 3 day course that will answer all your questions from tax to marketing and what status you would prefer.


Chris

 

[cornburn]

For £500 a year I would go Ltd company rather than lose my home as well as the credit rating.

As long as she doesn't work for HMRC, seen a posting thats £--- for cash we'll forget about the VAT only to be told no we wont I work for HMRC

How much debt could you get into as an electrician that you'd lose your home? I really can't see how this could happen, all the bits we use are cheap and apart from a van and a few bits what are the overheads? We're hardly turning over millions with 50 staff on the books and multiple premises (well I'm not anyway!) Many business have building rent, rates, employees etc to pay even when times are hard but we're very fortunate in that respect so if one week we don't make very much, it also shouldn't have cost us very much to do that work.

I wouldn't go ltd, the legal implications about how business bank accounts can be used and your responsibilities are far greater than being a sole trader, and it also costs you more. You have far more flexibility as a sole trader.

VAT registration depends on who you expect your customers to be, if mainly domestic then I wouldn't bother, you'll have more in your pocket at the end of the day without going VAT registered. If mainly working for VAT registered businesses then it would probably be worth you voluntarily registering. Best thing is probably do 6-12 months as a non VATed sole trader, then at the end of it look at how much more or less you'd have made if you were charging and reclaiming VAT (or using the flat rate scheme). Most of the time our charges are mainly for labour eg fit a spur, charge the customer £50:

£50 no VAT - £1.50 for socket = £48.50 profit

£42.50 +VAT= £50 to customer - £1.24 for socket - £7.50 to VAT man = £41.26 profit

so not worth it for reclaiming on parts, flat rate can work out well when working for VAT reg businesses though as you can make a percentage on your labour charges.

 

[ian.settle1]

How much debt could you get into as an electrician that you'd lose your home? I really can't see how this could happen, all the bits we use are cheap and apart from a van and a few bits what are the overheads? We're hardly turning over millions with 50 staff on the books and multiple premises (well I'm not anyway!) Many business have building rent, rates, employees etc to pay even when times are hard but we're very fortunate in that respect so if one week we don't make very much, it also shouldn't have cost us very much to do that work.

I wouldn't go ltd, the legal implications about how business bank accounts can be used and your responsibilities are far greater than being a sole trader, and it also costs you more. You have far more flexibility as a sole trader.

VAT registration depends on who you expect your customers to be, if mainly domestic then I wouldn't bother, you'll have more in your pocket at the end of the day without going VAT registered. If mainly working for VAT registered businesses then it would probably be worth you voluntarily registering. Best thing is probably do 6-12 months as a non VATed sole trader, then at the end of it look at how much more or less you'd have made if you were charging and reclaiming VAT (or using the flat rate scheme). Most of the time our charges are mainly for labour eg fit a spur, charge the customer £50:

£50 no VAT - £1.50 for socket = £48.50 profit

£42.50 +VAT= £50 to customer - £1.24 for socket - £7.50 to VAT man = £41.26 profit

so not worth it for reclaiming on parts, flat rate can work out well when working for VAT reg businesses though as you can make a percentage on your labour charges.

What would happen if you had a big job and your client does not pay you?

 

[cornburn]

It would have to be a pretty massive job to go that wrong that you'd be at risk of losing your home or threating your business, you're talking fronting the cost of ten of thousands of pounds worth of materials to be taking that gamble. All labour charges are obviously your time, not your money so the only problem I see is when ordering in very expensive kit, in which case I would invoice the client for the kit as soon as it's available, then invoice separately for the work, cabling etc afterwards.

 

[Tester Steve]

From the Business Link website:

Limited companies have to pay corporation tax on their income and profits. They also need to operate a PAYE (Pay As You Earn) system to collect and pay income tax and National Insurance contributions from their employees - including company directors.

The company itself must work out how much corporation tax it needs to pay, using a self assessment system. To avoid paying penalties, it's important to understand how this system works and when your company needs to make returns. Your accountant or auditor will be able to advise you.


When you register a new company, the Companies Registrar will pass on the details to HM Revenue & Customs (HMRC). You must also contact your own local HMRC office to let them know that your company exists. If you do not do this, you may have to pay a penalty.


You pays your money.....


Steve.