Sole Trader Registration

[gherriott]

I have recently become self-employed, and was advised by a friend to trade under a LTD company, thus allowing myself protection against bankruptsy and so on. What I am confused about is, can I trade under a name WITHOUT registering the name as a LTD company (as this costs in excess of £40)? Is it 'illegal' to have a 'company name' on my invoice that is not a registered company name? Also would you recommend I employ an accountant or would you say it is fairly straight forward when it comes to tax returns?

 

Thanks for your help.

 

Greg

[adamharman]

I'm fairly sure that as long as you make it clear who the "legal entity" is that people are trading with, it isn't a problem.

As a sole trader, this would be you. You could have a company name and logo on your invoices and put "Greg Herriot T/A blahblahblah" in the smallprint somewhere.

 

If you're fairly competent with numbers and have a basic understanding of how tax works, doing your own books and tax return isn't difficult. I use a spreadsheet laid out like a traditional cash book, then bung all the numbers into some software called taxcalc which works out the tax and does the online tax return. Costs about 30 quid a year to update it, but still much cheaper than an accountant.

[Guest lightnix]

Hi Greg.

 

This has come up before. Have a search for IR56 and IR35 - that should lead you to some relevant posts. The old Freelancing thread also contains most of the argumants for and against being a Ltd. Co.

 

To recap my own opinions on the subject: it basically depends on the kind of work you plan on doing. Trading as a Ltd. Co. can have a number of definite advantages for those working as LDs, operators and other HoD types, but may not be so suitable for the humble "Tech with a Toolkit".

 

An accountant is an absolute must for anyone setting up in business by themselves. They may cost a few hundred pounds a year, but can save you thousands in return. Mine certainly has - I'll PM you his contact details.

[Pete McCrea]

I have recently become self-employed, and was advised by a friend to trade under a LTD company, thus allowing myself protection against bankruptsy and so on.

This doesn't provide the level of protection has diminished, and should soley be viewed as a means to walk away from poor business decisions and debt. The bnaks, and some distributors have wised up and will as for security before giving finance (they'll happily open a new company account). it also makes the whole Freelance/subcontractor thing easier, as you become an employee of the LTD company, and so can give an additional layer of seperation. it also ,makes you appear potentially as a more professional entity.

 

What I am confused about is, can I trade under a name WITHOUT registering the name as a LTD company (as this costs in excess of £40)? Is it 'illegal' to have a 'company name' on my invoice that is not a registered company name? Also would you recommend I employ an accountant or would you say it is fairly straight forward when it comes to tax returns?

 

As mentioned above, it's perfectly possible to be self employed, and Trade As something. I used to have a business account for Peter McCrea T/A 8th Level. This mean it would accept cheques made out to both names. Obviously all the relevant paper work had to have the correct details.

[gareth]

What Nick and Pete said.

 

It's quite possible to trade as a particular name without actually registering that name, but of course someone else could come along and say to themselves "Ooh, I quite like the name 8th Level" (to use Pete's example) ... "I think I'll register that with Companies House", at which point you're caught on the back foot.

 

It costs a lot more than £40 to get yourself up and running as a limited company - as well as the initial registration fee, you have to pay filing fees every year to Companies House, as well as the professional fees of the accountant that you really should be using to look after your books (as Nick said). But the services of a good accountant are worth a whole lot more than you'll pay in fees - mine used to save me a lot more in tax than I paid him in fees every year.

 

Personally, when I was freelancing I started off operating as a sole trader for a few years, and later I set up a limited company and registered it for VAT (given the circumstances under which I was operating at that time, it was financially advantageous to me to operate that way). But everyone's different. Your first step should be to speak to an accountant, explain your circumstances, and take their advice.

[gherriott]

Thanks for all the advice, it has cleared up a few issues I was unsure about. I shall speak to an accountant and let them explain in more detail exactly what is involved and any fees that I would need to pay that I might of overseen. The figure of £40 to setup a LTd company with Companies House was what was quoted to me from an online company...I am now thinking it might be best to become a sole trader for a while until my financial situation will allow me to invest in creating my own company.

 

Once again thanks for your help. If there are anything to add to the above advice I would greatly receive it and will carry on checking this thread.

 

Greg

[paulears]

Ltd Companies before the days of the internet were advertised in Exchange and Mart - for around the same price, I seem to remember. The protection you get from the company running into debt isn't that useful to somebody starting out anyway, as you're unlikely to have any credit available that's able to get you in trouble. If you wanted ten grand to buy a second hand van, it's likely that you'd get the money as an individual, but doubtful if the bank would loan your company the money without any history, unless you stand as guarantee - and if you do, the protection against going bust vanishes - as you'd be personally liable for the loan, just what you went 'Ltd' to avoid. For me - my accountants advice was NOT to go Ltd. He told me that a year earlier it would have made sense, but the Chancellor changed things a bit to make the advantage go away. My accountanst do a fair bit of work for me, and I've got a capped deal with them - £900 quid a year for the next three years, and this, for what they save me, is very good value. I also note you mention sole trader, not partnershio - but if you went Ltd, you do need another person to satisfy the rules (as far as I'm aware you still need a Managing Director and a Company Secretary).

[Pete McCrea]

Paulears is right about needing two people- a minimum of 1 Director and the Secretary.

 

If your savvy enough you can buy the required documents online as templates - cost me £15. Fill in the blanks, download the four forms from companies house, and then submit the documents for £20, making a grand total of £35. That's what it cost me to get Production:av set up, as I have a friend who is a solicitor who signed the documents for me.

 

It may seem like a lot to pay for an accountant, but as the others have said it really is worth it. You also need to speak to them now to ensure you make the correct decision. It really is down to your circumstances and what you plan to do that will decide which way you need to go. We went LTD, as it was a decision to buy kit and employe people, not simply to punt myself out as hired help.

[Ben Langfeld]

... if you went Ltd, you do need another person to satisfy the rules (as far as I'm aware you still need a Managing Director and a Company Secretary).

 

Not any more. As of October, the last of the provisions of the Companies Act 2006 came into force, providing that a company secretary is now not a requirement for a private company and so a single director is fine. This must, however, be stated in the articles.

[adamharman]

I suppose the answer to the "do you need an accountant" question depends on the nature of your business. For many people, an accountant will be the way to go. I'm primarily a builder, so my accounts are much simpler than a lighting hire company for example as I have very little turnover of capital equipment.

 

I had a good read of the hmrc website which saved me a few quid a year, and given my relatively small turnover I'd be extremely surprised if an accountant could save me enough to cover his fees. At the end of the day, they can't change the tax laws, just advise on how far you can push the limits.

[gherriott]

In terms of what work I do as a freelancer, I mainly work as a programmer and board op. Secondary to that is production electrician work. I also do a bit of lighting design too. So as you can see it can vary, and I do not have any business expenses as such, or at least none that are not claimed back when I invoice the company I was working for.

 

Something else that has cropped up through my reading is the term 'capital shares' which seems to be something which I have to state in order to register a LTD company. What exactly is this, and what figures should I enter?! I don't have any capital to invest in the company, as any money made goes in to the bank and is then almost immediately sent straight back out to cover rent and student fees!

 

I have also been advised to get a business bank account, I am however a bit unsure about this as if I am transfering any wages earnt to my personal account, or even setting up direct debits from the business account to pay bills, it appears I will end up paying quite a lot in transaction fees. Is it necessary to get a business account?

[Ben Langfeld]

Something else that has cropped up through my reading is the term 'capital shares' which seems to be something which I have to state in order to register a LTD company. What exactly is this, and what figures should I enter?! I don't have any capital to invest in the company, as any money made goes in to the bank and is then almost immediately sent straight back out to cover rent and student fees!

 

Put 100 shares at £0.01. Assign them all to yourself. Sure you can find £1 somewhere....

 

I have also been advised to get a business bank account, I am however a bit unsure about this as if I am transfering any wages earnt to my personal account, or even setting up direct debits from the business account to pay bills, it appears I will end up paying quite a lot in transaction fees. Is it necessary to get a business account?

 

You will need a business account if you set up a ltd company. If you trade as a sole trader, you can just use a personal account, but you won't be able to accept cheques in a trading name. As a board op, I suspect you will want to use your personal name to trade with, so this won't be a problem. Also, any bank will give you free business banking for 12-18 months.

[paulears]

Business bank accounts are expensive. At the moment, the Alliance and Leicester is the only one that is affordable (having just transferred my Barclays accounts there) Opening a business account is not simple - because the banks charge fortunes just for having one. The A&L needs a sizeable sum to be paid in each month, but I'm over that limit so that is OK, but unless you have at least a four figure sum going in each month, expect to be paying £500 a year at least, in charges (thank you Mr Barclays). There are some web sites that will compare business banking, and the charges are scary, or they have daft limits (like the Nationwide) which limit you to very small numbers of ins/outs.

 

You mention you don't have business expenses that you can claim against your profits? I'm surprised. No fuel, travel, subsistence, cables, leads, plugs, cases, hotels, tools, safety equipment....... The list is endless. All these things can be used to reduce the tax you pay. Remember you pay tax on your profits. So income, minus expenditure - all the little things add up. You can claim membership fees from things like the ALD and your BECTU or EQUITY membership too. My turnover is large, my profits modest - some years when I've been spending on kit, I get a tax refund. Other years I pay the tax man. Don't forget that you also have National Insurance to factor in. If you have a Limited company, then your pay you draw will have NI deducted from it. The Company also has to pay the employers NI contribution meaning even more of your hard earned cash going to the Government. If you are self-employed, then you have class 2 and class 4 NI - but aparts from the regular two or three quid a week by direct debit, you only pay the other NI when you pay the tax, so again it's based on your profit. These are the things that might mean your accountant will say forget going the Ltd route.

 

As for your share capital - I don't understand it that well myself, so shan't comment - far too complicated for me!

[slipstream]

Abbey will operate a business account - free for life - there is a limit to the number of transactions per month - 50 or 100 if I recall - but not something the OP will breach I suspect.

 

Sam

[gareth]

I used to use Abbey for my business account - totally free, no charges, as long as you didn't go overdrawn or whatever.

 

I'll second what Paul said about writing things off against your business - if you really think about it, it's amazing what you can write off! As well as the obvious things (travel to and from jobs, accommodation, etc.), you can be a bit 'creative'. For example, I built myself a lovely PC for the office at home - and because I used it a lot for work (book-keeping, draughting, paperwork, etc.) my business paid for the whole lot (and claimed the VAT back :P). As someone who designs lighting from time to time, I obviously need a portfolio of work ... therefore I need a decent camera to take production photos with ... so the business paid for a very nice digital SLR (again, with the VAT being claimed back). And so on ...

 

As for paying yourself a salary - this is where you need your accountant. Just pay yourself enough every month such that you reach the end of the financial year just below the income tax threshold - then pay yourself a company director's dividend. My accountant had a payroll section which dealt with clients such as me - every month they sent me a 'payslip' telling me how much salary my company would pay me, and how much NI I'd pay on that. I then transferred the salary (less NI) from business a/c to personal a/c, and the NI was paid automatically via direct debit. Very easy, when you've got someone who knows their stuff fighting your corner! :)