Registered a Ltd company for sole trader?

[dfefferkay]

Hi, i hope someone here might know better than me and probably has been through the process.

I recently transitioned into self employment working as a sole trader. I know i have to get my PL insurance sorted, and ive branded myself (not in the cattle way) to help with advertising but do i need to register my business name and do i need to register it as limited to reduce the risk to my assets, ie house!

thanks in advance for your help.

Darren
Pk Plumbing & Joinery

 

[IDCHAPPY]

Yes, your best going to be a PLC mate, me and my dad started as sole traders working in partnership but the advise was to go down the PLC company route. The you get to add PLC after your company name... Whoop

 

[snowhead]

Going LTD has costs involved.
As a start up it may be too early to commit to this.

However when choosing a Business name you need to;

Pick a name, check the Domain name (online) is free and check the company name (online) is free all at the same time.
Then register the Domain and the Company name at exactly the same time, otherwise you could loose one of them.
You may find you can't have what you want i.e PK Plumbing, as it may be in use.

You can register at companies house and keep the co.name dormant till you are ready and busy enough to go into a Company.
Registering as a Company protects your trading name.

 

[lame plumber]

of note, PLC is normal term used for public limited companies, bit early for you yet. By going limited, you will restrict the amount of credit any merchant will give you as the limit is the bit they don't like as if you have 100 £1 pound shares between 2 directors, technically each of you is only responsible for £50 debt each max!, hence why your credit is ziltch and the banks will still ask you for personal loans and attach them to your home!

Also being a director of a ltd co can cause you to breach the law in numerous ways and most of which have a maximum punishment of a prison term! You'll end up having to do 2 sets of tax returns each year one for you and another for companies house, trouble if you dont do co house ones on time/correctly.

and regards limited liability, get things wrong and there is no limit have a peek on here under directors responsibilities https://www.gov.uk/running-a-limited-company

My thoughts are and will be till I have a large workforce and warehouse (as if) be a sole trader, only take on what you can afford, run tight accounts and keep debt at bay, the best way being - if you cant afford it dont buy it, then you'll sleep better and trade longer.

 

[MOSSEP]

As above, its quite a headache running a Ltd company. Do a lot of research first.

 

[dfefferkay]

Thanks, I've already secured the domain and have functioning site hosted. I have a limited knowledge of networking and web publishing but im happy with the foundations to build on. I'd appreciate any feedback

PK Plumbing and Joinery

RE companies house thanks i hadn't thought of protecting the name and i've checked and it is still available.

With returns, i already have a UTR from previous self employment can i use this and fill my returns as self employed or will it have to be filled as a business?

 

[stevetheplumber]

you definitley need an accountant to do tax returns fro ltd company

 

[lame plumber]

Thanks, I've already secured the domain and have functioning site hosted. I have a limited knowledge of networking and web publishing but im happy with the foundations to build on. I'd appreciate any feedback

PK Plumbing and Joinery

RE companies house thanks i hadn't thought of protecting the name and i've checked and it is still available.

With returns, i already have a UTR from previous self employment can i use this and fill my returns as self employed or will it have to be filled as a business?

as above 2 sets of accounts if you go limited and twice the accountants bills, going ltd at start up will probably cause you more hassle than its worth and limit your ability to trade!

 

[albatross]

Limited Liability Partnerships or Company and other formations

My accountant used this lot to set up my Ltd company.

 

[thompsonbrown]

Ltd comes with benefits such as reduced tax on dividends etc... Also will help your credit rating as you are employed rather than self employed.
A lot of the benefits that used to be associated with Ltd have gone but a decent accountant will help with that.
Be prepared for around £2500 in accountants bills for book keeping and end of year returns

 

[jonnyswamp]

If I were you I'd concentrate on getting the business up and running for minimal costs in the first couple of years, sole trader for now, less accs fees and headaches etc
When you've established yourself then decide if its worth it

 

[thompsonbrown]

If I were you I'd concentrate on getting the business up and running for minimal costs in the first couple of years, sole trader for now, less accs fees and headaches etc
When you've established yourself then decide if its worth it

Thats the way I would do It aswell.
However starting off Ltd is an advantage If you can afford the additional costs in your first year

 

[SafeGasInstall]

Had a ltd and now switch to self employed ! Easy life
LP has given very GOOD advise there ....do NOT go ltd unless you have turn over of min £500,000.00 if you only have about £100,000.00 then you will waist big money on accountants fees

 

[Sag]

Ltd has some great advantages. Accounts fees should not be the main/only reason not to go Ltd, the account (if any good) will easily save you more than their fee.

The tax benefits can be significant!

If you have a business plan or even a financial forecast, sit down and go through it with an accountant. You'll be surprised at what you can miss out on without knowing.

As far as trade accounts and credit, that all depends. My personal credit rating is pretty crap. My Ltd credit rating is excellent with £3k credit limit with just one supplier.

 

[cr0ft]

Thanks, I've already secured the domain and have functioning site hosted. I have a limited knowledge of networking and web publishing but im happy with the foundations to build on. I'd appreciate any feedback

PK Plumbing and Joinery

RE companies house thanks i hadn't thought of protecting the name and i've checked and it is still available.

With returns, i already have a UTR from previous self employment can i use this and fill my returns as self employed or will it have to be filled as a business?

The biggest bit of advice I could give is make sure your name is one that will grow with your business. As people on here know, I started as a plumber and trained as an electrician too about 3 years in. Dripbusters Ltd is a great name for a plumbing company, but certainly not for an electrical company. Changing it now would be too expensive though so I am stuck with it.

PK Plumbing and Joinery is presumably your initials and the trades you do. What if you also want to add in other trades later, i.e. move towards general building?

 

[cr0ft]

If you keep your book-keeping up to date (which any business owner should do of course) then you can keep your accountancy fees down hugely at the end of the year, plus you will know what your business is actually doing for you each month.

There are many good accounts packages you can buy which will make the tax return process very straightforward, i.e. one that you can complete yourself at the end of the financial year.

I have done my own each year (I started as a Ltd company from the beginning of my company). Touch wood, so far I have not had any inspections etc so they must be happy enough with my accounts.

 

[MOSSEP]

Here’s a few things that I didn't realise when I went from a S/T to Ltd.




Most wholesalers will make you sign a waiver with them stating that the director will become liable for for any money’s owed if you go bust.


Van insurance would increase massively as its in a company name and I would lose my no claims bonus that I had built up myself.


That there would be 2 sets of accounts to file every year, as well as other things to companies house. This obviously results in a much bigger accountants fee.


That you still have to pay higher rate tax if your earnings take you into the 40% tax bracket. Although the company only pays 20% tax, you cant then pay all the profit to yourself and not pay higher rate personal tax.


You will need a new bank account and it may be hard to get any overdraft you once had given to you again.


The stress involved with trying to work out how to set up PAYE and other things relating to HMRC. The amount of time I sent on the phone to them was ridiculous. I now you can get an accountant to do it but then its more and more fee’s.


Im sure there are more but thats all I can think of at the moment. To be fair, once you have got your head around it and settled into the new way of doing things you get used to it, but for 6 months or so it was quite a shock. For a whole I wished I had never bothered!


Anyone else got any good pointers that someone going Ltd should know?

 

[lame plumber]

Ltd has some great advantages. Accounts fees should not be the main/only reason not to go Ltd, the account (if any good) will easily save you more than their fee.

The tax benefits can be significant!

If you have a business plan or even a financial forecast, sit down and go through it with an accountant. You'll be surprised at what you can miss out on without knowing.

As far as trade accounts and credit, that all depends. My personal credit rating is pretty crap. My Ltd credit rating is excellent with £3k credit limit with just one supplier.

You wont save tax on anything if you don't owe any tax in the first place!!! If your a start up company, youll not be paying anythinh like enough tax to warrant the hassle of going ltd, ask a decent accountant not one of the online rogues charging to set up ltd companies. Fm memory it only costs about £200 to diy, and of note £3k credit with one merchant is peanuts in the big picture. Just be advised or regret it sooner rather than later, if you dont have a tax bill putting you in the 40% bracket, being limited is pointless, as is going vat registered to early.

 

[Sag]

By being ltd you can pay dividends in order to help keep you below 40%. Stop scaremongering If you don't fully understand the benefits.

As I said, best thing is for the person to talk to an accountant not that they 100% should go ltd.

Your missing the point with the credit account, it wasn't about tje credit limit. I personally wouldn't have got credit. However the LTD is a separate legal 'person' an can get credit.

 

[Sag]

Going VAT registered can also benefit you if you do a lot of commercial work.

So, without knowing exactly what the OP intends to run the business like, all of our opinions are just that - opinions!

So, best thing to do is still talk to an accountant and discuss your business plan with them. They'll give you relevant advice rather than personal opinions of people over the net.

 

[lame plumber]

By being ltd you can pay dividends in order to help keep you below 40%. Stop scaremongering If you don't fully understand the benefits.

As I said, best thing is for the person to talk to an accountant not that they 100% should go ltd.

Your missing the point with the credit account, it wasn't about tje credit limit. I personally wouldn't have got credit. However the LTD is a separate legal 'person' an can get credit.

funny thing is I know an awful lot about it as having been the company secretary for business with multi (thats lots to you) million pound turnover ltd co. As the financial officer in charge of all aspects of the company I know the in and out of when you need to be ltd or not, so some who knows a little and shouts a lot shouldnt call others scaremongerers. If you read what I said, you dont get start up companies hitting the tax levels required to make it worthwhile going for ltd status esp if you are a bloke on your own. As far as getting credit, in my opinion, people who dont qualify for credit personally shouldnt be able to get it as a ltd co either, as the same people are running the accounts and it only leads to misery for all involved.

 

[MOSSEP]

Accountants strand to earn a lot from you becoming Ltd, so choose who gives you advice carefully.

 

[BLOD]

I work and pay tax as a sole trader, but have had my company name registered as limited for a few years mainly to stop anyone else using it - all this takes is a couple of easy online returns each year costing less than £30 to keep the name dormant
As far as I'm aware at present it becomes beneficial (tax wise) to trade as a ltd co when your taxable income is more than about 16000
As a ltd co You pay yourself the minimum wage on which you pay full rate income tax.
The rest are your wages is paid in dividends on which a reduced rate of tax is paid.

 

[Sag]

Start ups can very easily hit VAT and 40% personal tax thresholds.

And there is the financial protection of personal assets if your ltd.

I used to balance a £40m (that's many many multiples to you) account daily for a finance company so am well aware of what I'm talking about thanks.

 

[lame plumber]

oooooooooooooooooooh get her

dont forget the financial protection of ltd companies isnt what it used to be despite what some people think.

 

[Sag]

Lol, what a muppet.

 

[stratplus]

What effect does being a sole trader have on your home being at risk?

 

[Sag]

As a sole trader you are personally liable for ALL the financial implications of your company as your company is essentially you trading as xxxx plumbing & heating etc.

Taxes, fines, supplier accounts, salary to any staff etc. The only 'protection' would be your PL insurance which is not going to protect you from everything anyway (ltd or not).

So short answer, your home, car, savings and all assets are at risk when a sole trader.

 

[lame plumber]

as they are if your a director of a ltd company and haven't conducted your trading responsibly and with due care.

 

[Sag]

You don't have to run a business without due care and responsibly for it to fail. Just look at what the recession did to businesses across the UK.

 

[lame plumber]

You don't have to run a business without due care and responsibly for it to fail. Just look at what the recession did to businesses across the UK.

not an excuse in the eyes of the law though is it.

 

[Nostrum]

Lame, I do get the feeling you see things as having the 'if I'm not doing it, it's not right' type attitude in this thread.

Thousands of companies are incorporated every year and as many also go to the wall. Unless you've been completely irresponsible then you have no reason to worry although as already said, most lenders of credit will require a personal guarantee these days. Also, banks will lend money but expect the director to take liability of the repayments.

There are tax gains, and increased accountancy charges.

My business is not limited, but I hold the ltd name declared as dormant to protect it from being used by someone else. It may be that I go ltd this year as I am taking on some more ambitious projects, and would not want to risk my house etc but that doesn't make me irresponsible. Many business decisions carry risk otherwise everyone would be doing it already with nothing to loose. Banks etc recognise this, but obviously don't want all the risk dropped on their lap, hence the personal guarantees.

Someone mentioned choosing the name carefully, in reality it's not a major issue. You can be XYZ ltd trade as ABC plumbing if you like.

There has to be a logical reason for going limited though, simply wanting the 3 letters after your name is silly. You'll get no kudos for it, some tax benefit if you are earning enough, and some hassle from lenders and increased overheads. At the early stages I would concentrate more on your route to market, secure the trading name if you feel necessary and make the business profitable.

 

[lame plumber]

Not it the least mate, but I have seen a fair few people convert to ltd for all the wrong reasons and they sought advice some of the time.

the main reason is to attempt to protect your private assets and distance yourself from your trading company as well as getting a different set of tax liabilities to work with. As Ive tried to make clear, if your trading with a profit of around £40k, you could save some £2900 or so in tax if your ltd. But then you need to take into account the additional costs that youll incur running the ltd co and at this level theres probably no point in going ltd for tax purpouses. Also the ltd side has been watered down, and if your creditors believe youve been complicit in the failure of your co then you can be hounded by them still for monies owed. so defeats the point of being ltd somewhat. Finally none of my comments were aimed at you personally, I was responding more to another op, so back in the arms and buy me a pint

 

[Chalked]

Good profit and high turnover with risky clients..... Go ltd

average profit, average turnover and good credit control. Don't bother.

 

[Sag]

Also, there are tax benefit of getting 'key man' insurance which can act as a kind of life insurance policy. A good IFA can guide you on that too.

 

[lame plumber]

Also, there are tax benefit of getting 'key man' insurance which can act as a kind of life insurance policy. A good IFA can guide you on that too.

can tell your background,

 

[Sag]

Really, what's my background then?

 

[Nostrum]

You've only got to look at the way some companies are wound up or liquidated in very questionable ways to assume that proving foul play is harder than it would seem.

As a director you must act in a way that is of most benefit to the company. I would imagine that paying yourself an unsustainable wage intentionally, or selling assets to yourself at ridiculously low prices would account to some form of misconduct and could land you in the poo.

Generally though most directors run the business with all good intent and purpose. Whether they make the right business decisions is another matter but I think you would be hard pushed to be liable for a mistake or bad judgement action to put you in a position of personal liability. I'm sure this is why administrators are brought in for PLC's, to check the companies accounts up to that point and ensure the damage is somewhat reduced. After all, shareholders will want to be sure they haven't been shafted by the directors?

Your right though setting up a Ltd company should not be done without careful consideration and weighing put he pros and cons, of which there are both.

That said, in your example you've proven the financial gain to be had in being limited, even if the accountancy bill added £1500 you'd still be £1400 p/a better off, that's a whole 8hrs work for us gas engineers.

 

[lame plumber]

you got a cheap accountant there

 

[Nostrum]

Or maybe yours is expensive? :sultan:

For some reason I can only choose smileys from racial minorities on my ipad.. This is the only one that seems to work.

 

[Ray Stafford]

Lots of different points being mixed together here.

There are three main reasons that our customer choose to go Ltd:

1. To protect their personal assets from business risks
2. To minimise their tax liability
3. If the business is owned by more than one person, a ltd co shareholding structure gives more flexibility

The benefits of 1) are not as clear-cut as some people think, but they are real. Many wholesalers (including us) will ask for a directors guarantee unless the ltd company has significant assets and several years trading history. The bank and other lenders are likely to take a similar line. My personal view is that the best way to protect those assets is to trade in such a way that you don't enter into commitments that you can't fulfil. I appreciate that this can be difficult when subbying on new-build for example, which is why we don't chase customers who specialise in that line of work, because they are inherently risky.

To be honest, you are unlikely to be pursued by the authorities if your Ltd company goes bust unless
a) you owe the taxman lots of money or
b) you do it over and over again

The tax liability issue depends on individual circumstances. The best advice our accountant ever gave us was "run your business to make a profit, not to avoid tax". Unless the sums are quite large, you need to be aware that you might find yourself running up accountancy bills, and using up your own time on stuff that could have been earning money.

The business of mixed ownership probably doesn't apply in this case. I tend to be wary of new starts that are run by more than one person anyway - new partnerships often dont survive the growing pains, and sleeping partners tend to wake up quickly if they dont get the return they were expecting.

 

[Ermintrude]

Another intelligent post from ray. Bet he's just a vegetable at work !

 

[lame plumber]

Ray gives it from the other side of the fence

 

[Centralheatking]

Very sound advice from Ray maybe he did not spell it out but suppliers will not always allow credit accounts to small and new ltd companies cause when they go tots up ray and co cannot get the dosh back but with sole traders etc they can take your truck wife etc CHK

Lots of different points being mixed together here.

There are three main reasons that our customer choose to go Ltd:

1. To protect their personal assets from business risks
2. To minimise their tax liability
3. If the business is owned by more than one person, a ltd co shareholding structure gives more flexibility

The benefits of 1) are not as clear-cut as some people think, but they are real. Many wholesalers (including us) will ask for a directors guarantee unless the ltd company has significant assets and several years trading history. The bank and other lenders are likely to take a similar line. My personal view is that the best way to protect those assets is to trade in such a way that you don't enter into commitments that you can't fulfil. I appreciate that this can be difficult when subbying on new-build for example, which is why we don't chase customers who specialise in that line of work, because they are inherently risky.

To be honest, you are unlikely to be pursued by the authorities if your Ltd company goes bust unless
a) you owe the taxman lots of money or
b) you do it over and over again

The tax liability issue depends on individual circumstances. The best advice our accountant ever gave us was "run your business to make a profit, not to avoid tax". Unless the sums are quite large, you need to be aware that you might find yourself running up accountancy bills, and using up your own time on stuff that could have been earning money.

The business of mixed ownership probably doesn't apply in this case. I tend to be wary of new starts that are run by more than one person anyway - new partnerships often dont survive the growing pains, and sleeping partners tend to wake up quickly if they dont get the return they were expecting.

 

[Ray Stafford]

Very sound advice from Ray maybe he did not spell it out but suppliers will not always allow credit accounts to small and new ltd companies cause when they go tots up ray and co cannot get the dosh back but with sole traders etc they can take your truck wife etc CHK

Its more than just that CHK, although what you say is true.

The best person to judge the level of risk in a business is the owner. If the owner is using their time and money to create a limited company to protect themselves from the risk in their own business, what message does that send to potential creditors?

 

[Killy Bing]

Its more than just that CHK, although what you say is true.

The best person to judge the level of risk in a business is the owner. If the owner is using their time and money to create a limited company to protect themselves from the risk in their own business, what message does that send to potential creditors?

fully agree.

But out of interest, as we move from sole trader to ltd do we have to notify you?
also would our credit get reduced ?

 

[Sag]

Its more than just that CHK, although what you say is true.

The best person to judge the level of risk in a business is the owner. If the owner is using their time and money to create a limited company to protect themselves from the risk in their own business, what message does that send to potential creditors?

It's good business sense to protect yourself. It doesn't mean you are a conman for running an ltd (although there are far too many of them out there).

That's like saying having PL insurance means you know you're gonna screw up. That's not the case, you just value the security afforded to you by paying the premium.

 

[Killy Bing]

It's good business sense to protect yourself. It doesn't mean you are a conman for running an ltd (although there are far too many of them out there).

That's like saying having PL insurance means you know you're gonna screw up. That's not the case, you just value the security afforded to you by paying the premium.

The flipside is why does a new business have to be limited when they don't have the work to threaten their personal assets?

 

[Ray Stafford]

fully agree.

But out of interest, as we move from sole trader to ltd do we have to notify you?
also would our credit get reduced ?

You have to do more than notify us. The term "going limited" is misleading. You aren't changing at all.

When you start a limited company, it is a new legal entity. If it wants credit, it must apply for it in its own name.

If you are prepared to sign a directors guarantee, (which is incorporated into our account application form) then the limited company account is likely to "inherit" your credit status.

If you aren't prepared to sign such a guarantee, then your personal credit record is of no help, and we probably won't extend any credit at all to a new company until it has a few years trading history, and preferably some value in the balance sheet.

 

[Masood]

The flipside is why does a new business have to be limited when they don't have the work to threaten their personal assets?

I went Ltd from day 1. Nothing to do with protecting assets, just the way I wanted to structure the company. I had (still have) a vision and strategy, and a Ltd. company fit that better than sole trader.

I've had no trouble opening trade accounts but that may be because I didn't open accounts until I'd been trading for a while, always paid my bills, and showed through my purchasing history that I have a viable business.