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Sole Trader vs Limited Company


SA90

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Hi all,

 

Doing my first bit of freelance next week. I am currently in full-time employment, so it's a spare time type thing.

I also have a Limited Company registered under the category of performing arts support, which is not related to my freelancing, but can I pay my freelance taxes thru my ltd company?

 

Any advice would be great! Saves me a call to HMRC

 

Cheers

 

S

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It depends

1/ on what your accountant says

2/ on who issues the invoice

3/ on what your work provider expects.

 

HMRC has been getting tougher on work providers with regard to definitions of PAYE workers and self employed workers and single person Ltd Companies.

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Make sure that whatever entity you choose to trade under has appropriate liability insurance in place. If it's the limited co. that has the PLI policy, things could get sticky if you have contracted with the client yourself and something goes wrong.
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Thanks, I'll give my accountant a ring.

PLI cover is my own, through BECTU, so that should be fine...I'm just looking at using my company for tax purposes.

Invoice would be submitted through the agency that got me the gig, then I would be paid as a subcontractor by them. I just need to deal with my own tax and NI.

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Agreed a Limited Company is an entity in its own right, and also has responsibilities to its sub-contractors and the capability of attracting liabilities, court writs etc.

 

However being a sub-contractor to a company you are also a director of is perhaps something the HMRC might want to look at. The view might be that it is Director's Remuneration, does that affect the tax position you are looking at ?

 

Suggest you need advice and to look at if it makes financial sense in your situation.

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This is plainly silly!

 

If you have a Ltd company (and clearly don't understand the implications) then you will be an employee of this company, so any tax liability would be done via PAYE, along with the employer NI and the employee NI. In your self-employed persona, you pay this based on the end of year figures. As the ltd company will also be needing year end accounts plus possible corporation tax - given your confusion, an accountant is absolutely the only place to take advice. Remember, HMRC do NOT give advice, only factual opinion, which may, or may not be correct.

 

Is the Ltd company dormant or active. Given that you have two businesses and a current employer with presumably PAYE considerations, then your Ltd company employment will also need you to do the regular HMRC declarations and reporting, which mean quite a bit of work for you. I don't envy you with two employers, and your self-employment status alongside. Keep in mind freelance status means nothing at all - you have to decide if you are working as a sole trader or as an employee of your own company. Often, a LTD company is NOT the best because the tax implications cost you more than being self-employed. Being a company director does give you the option of taking dividends rather than pay - but again, an accountants advice is critical. Where money is concerned, ask the professionals, not us!

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Colour me confused but if you have a limited company then the BECTU policy for freelancers goes nowhere near covering that, or am I wrong?

 

We have had plenty of debates and disagreements over that policy on BR but I can't remember anyone thinking it covered a limited company before.

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The insurance offered by BECTU can be used by ‘one man bands’ limited companies. From BECTU’s PLI FAQ:

 

Q: Is my BECTU related Limited Company covered by this policy?

 

A: Yes, provided that you are the only director and employee other than one director who is family member employed for clerical duties only.

 

I thought that a limited company invoicing for work and then paying yourself as a self-employed was an IR35 conflict, or have I got that wrong?

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Having PAYE employment, and some self employment, and a Limited company to use for making a living seems to be a very paperwork heavy way to make money. Talk to a proper accountant about making more money not paying more fees.

 

If you were a multinational operation then perhaps a company in each country would work well but by then you would have accountants and lawyers in each country anyway.

 

For a small operation (one man band!) Fee Limitation is the name of the game otherwise "professional fees" (accountants, lawyers etc) eat into what you earn, that is why you do your own book keeping, your accountant would have it all done for you BUT for a fee. Be very certain that HMRC know all the tax fiddles used against them collecting the correct tax. Be sure that your multiple entities is the best system for your future.

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How much work are you intending to do? Remember as a sole trader there is a new £1000 tax allowance this year which can be used against this sort of earnings. If that is the sort of amount we are talking about forget using a limited company operate as a sole trader, do the tax return yourself and save a lot of work and fees. Note also the point about BECTU insurance above. If you have more than two directors then it won't be valid for you as an employee of that limited company.
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Was about to start own topic but this seems a nice recent post to join in on!

 

I've very recently gone 'freelance' and have been meaning to get a bit more clued up on my tax situation. I haven't honestly looked into it in much more than registering as self employed and getting a UTR number. Do most of you have an accountant? I have been keeping detail of every job I've done, along with details of when I am PO'd, when I invoice and when I get paid.

 

So far my work has been mainly as an 'AV tech' for corporate conferences so I'm normally fed, and my travel cost is minimal as I'm London based. My invoice tends to just list my day rate so I haven't much in they way of expenses. Perhaps I'm doing it wrong, forgive my ignorance! Any tips welcome :-) .

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Getting an accountant is dead easy. Pull together the figures you already have (turnover, expenses, how much tax you pay of various sorts) and present those figures to an accountant and have a brief discussion; if they can tell you ways there and then they can reduce the amount you pay out by more than the fee they want to charge you for doing it then you need an accountant and you should sign up. If they can't then either you've accidentally done perfect accounts yourself and don't need them, or they're not a good accountant and you should approach someone else; it really is that simple.

 

As a sole trader/small business you don't want to be approaching big brand-name accountancy firms; there are still plenty of one-man-band / village accountants in existence and one of them will be small enough to want to learn more about the details of your business so that over the years they find more ways to save you money; again though if they ever stop saving you money than you knew about or could do yourself then it's time to find a new one.

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