UKC

Fairly topical

My wife will soon finish a course and start seeing clients.

What are the pros and cons of being self employed or setting up a ltd company

In reply to iusedtoclimb:

That's difficult to answer with limited information.

Take a look here, lots of free advice http://www.sjdaccountancy.com/about/ourservices/sjd_contractors_guide.html?...

HTH Davey

In reply to iusedtoclimb:

There's a lot to be said for being a limited company. There's a clear demarcation between work/private; it's much easier to reconfigure as circumstances change, the bookkeeping is easier, and although legislation changes, on the whole there are more inducements, tax breaks etc for SMEs that are limited than are partnerships.

In reply to iusedtoclimb:

Due to the husband not being a limited company, some family friends ended up having to sell their long term home and move to a cheaper home to pay of the money he ended up owing to clients (for reasons I forget).

In reply to iusedtoclimb:

I'd been trading as a sole trader since 2010 until January last year, at which point I became limited. Perhaps it's just me, but the attitude shift which came with incorporating was very helpful - I found that I became more 'business-oriented', and much more organised with regards to book-keeping, invoicing and dealing with business matters.

The other advantage was that it was more advantageous in terms of tax. I believe it still is even at a modest turnover, although less so after the changes to how dividends are taxed. The downside is that accountants tend to charge far more for producing and submitting accounts and tax returns for limited companies than they do for dealing with sole traders.

I also suspect that being limited might be more beneficial for securing a mortgage, if that's a consideration.

In reply to Timmd:

Whereas if the husband had been a limited company some clients might have had to sell their long term home and move to a cheaper home because they were not paid money they were owed at not fault of their own... I have very little respect for people who start LTD's for the purpose of leaving unpaid debts if they are not happy with their business performance. The sooner shareholders are made to assume their company's liabilities the better.

(Signed: Somebody who is regularly made to fight for payments and occasionaly goes unpaid)

In reply to Mr Lopez:

'I have very little respect for people who start LTD's for the purpose of leaving unpaid debts if they are not happy with their business performance.' No, that's fair enough. But actually it's b**dy hard to get credit for a new Ltd company without giving director's guarantees.

And doing business with limited companies without being aware of and factoring in their creditworthiness surely isn't a great strategy.

In reply to Mr Lopez:


This is literally the point of a limited company (malicious exploitation of the rules notwithstanding). Limited as in 'limited liability' - if it goes wrong, you lose the company's assets but not your own.

In reply to tehmarks:
>.I also suspect that being limited might be more beneficial for securing a mortgage, if that's a consideration.

I don't know what it's like to get a mortgage as a sole trader so I can't compare, but getting a mortgage as the director of a new limited company is not necessarily easy. As far as your individual income you probably aren't getting much (so you're a bad mortgage risk), but your company is still an unproven entity and a lot of lenders will not be interested until it's got a few years of accounts.

That was certainly my experience when I started as a contractor. Fortunately there are brokers out there who deal specifically with people in that situation - but don't be surprised if the high street vendors aren't interested though.

In reply to mullermn:

You can at least up your salary though - it may not be tax-efficient, but I assume having a reasonable salary is more appealing to vendors than someone who at first glance appears to be earning less than minimum wage when salary alone is considered.

I haven't really looked into it in depth mind, I'm a long way off buying a house! Fairly content with my water-based home at the minute.

In reply to Rob Exile Ward:


I have been on both sides of this.
My and my Co directors houses are on the line for the mortgage we have on our workshops and over the years we have been taken a few times by companies that shut then re open again with a slight name change.



We credit check all new customers but occasionally one will slip through the net.

In reply to mullermn:

In my experience as a sole trader, what mortgage lenders want to see is a regular monthly income into your personal bank account, they don't care that much about seeing your business accounts. So, if you want to make it easier to get a mortgage, pay yourself a regular amount on a set date every month. They will also want to see 3+ years' worth of tax return info (SA302 forms).

In reply to Dax H:

If people are dishonest (or failing - not always their fault) then legal status doesn't count for a lot, whether they be sole traders, partnerships or ltd companies.

In reply to Mr Lopez:


It's possible that another scenario may have happened, with him being an honourable sort, but they're all very fair points.

In reply to iusedtoclimb:

I have a small limited company.
I believe I'd be better off being a sole trader, by a margin. But I do have first hand knowledge of others being taken for everything when the economy colapses, as it does, especially in construction. And having been knocked payment myself, in my second year I worked the whole year for free, I am pleased that I am Ltd. There is a level of self protectionism, but thats not daft, devious or immoral. It simply is me looking after my home, the food on my table and my loved ones. Obviously one tries not to fall into insolvency, but there is risk in all enterprise where you put money, trust or commitment into it.

Getting a mortgage, you can get one on 2 years books, but they prefer 3. Least this is what I found a few years ago and got a mortgage. Pay yourself regularly a salary. Even if its 2 payments one salary and the other dividend.

Many people do perfectly well as sole traders. But I am told by family members that being Ltd is an advantage if the company gets larger, and is easier to arrange from the inception, rather than when it is established. But I guess that will depend on what the business is.

In reply to Mr Lopez:


Starting with the shareholders in the Royal Bank of Scotland et al.

In reply to Mr Lopez:


The clients would not have to sell their homes if they were trading as a limited liability company. This door swings both ways.

I have traded as an individual and as a director of a limited company. As an individual I was exceedingly risk averse as I was all to well aware that my personal finances had little protection - there is no way I would have put my house on the line by spending cash I didn't have in anticipation of future payments. I was almost as risk averse with the limited liability company, perhaps if I'd taken more risk it would have gone somewhere and put more work in other people's hands than it did.

In reply to wintertree:


Errr, they may well do if they're unable to pay their mortgage as a result of not being paid for work they've done...

In reply to tehmarks:


Fair point.

In reply to iusedtoclimb:

Thanks for the advice