A thought just brushed over me today. Is is stupidity to run my business as a sole trader rather than as a limited company?
I did some quick calculations and it looks like I can never lose in cash terms. I know there is extra work involved in filing accounts with companies house, but if I could do them myself there would be no greater expense.
Am I missing something vital? Or are the days of being a sole trader leaving us quickly?
That one thing I'll certainly be considering if my bookkeeping business takes off over the next few years. By which time I will have done the business taxation side of things with ICB Level IV. My only problem with it is there are nosey gits like me about and websites Duedil.com.
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Never buy black socks from a normal shop. They shaft you every time.
My only problem with it is there are nosey gits like me about and websites Duedil.com.
That's a downside (not you personally) the fact your accounts are freely available. Doesn't bother me personally but might do some.
Upside is the potential tax savings, ability to capitalise goodwill after three years. I know the Accountants I work with are allways keen to get clients trading via limited companies where appropriate.
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Tony
Responses are intended as outline only. Formal advice should be sort from your Institutes Technical Department or a suitably qualified Accountant.
Yip Peasie, I thought of that too, cos I'm just as nosey. But really from the abbreviated accounts you can't tell a lot.
I will conciser this, only thing putting me off is that I've spend time changing to deal with only sole traders, how does it look if I incorporate now?
Yip Peasie, I thought of that too, cos I'm just as nosey. But really from the abbreviated accounts you can't tell a lot.
Occasionally you do get the full accounts posted and not the abbreviated ones. I've even seen a football club with handwritten notes to accompany the accounts - that will soon be a thing of the past. The club I'm talking about were playing in the Scottish Premier League about 15 years ago but now find themselves in the "Juniors".
As you'd be filing your own accounts that wouldn't be a problem.
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Never buy black socks from a normal shop. They shaft you every time.
A sharp learning curve though. Although I can just about prepare a set of accounts for a limited company in a classroom based setting, knowing how to do them and file them in real life is always a bit different.
Though, it would seem by the end of this academic year I will be raised to level 3 in ICB with my HNC complete and it will actually allow me to do draft accounts for others. Terrifying thought!
After downloading piles of abbreviated accounts I realised just how much I still have to learn. Then again, you don't become an accountant in a couple of years it takes many more. I've got the first two modules for level IV for the ICB and they are a completely different league to what I've done before.
As regards the accounts I downloaded - totally different from what you learn "in the classroom". The vast majority of them have only one or two shareholders and the shareholding amounts to either £2 or £100 at most. What is interesting is the accounts for the likes of Rangers FC and Celtic FC. Or should I say, the notes alongside these accounts.
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Never buy black socks from a normal shop. They shaft you every time.
I've not read the ICB materials but I have read the AAT stuff on limited company accounts and it all seems way too basic.
If you want to learn this stuff take a look at the Kaplan study materials for ACCA papers F3 and F7 (and if you get seriously hooked on this stuff try P2 although you may find that one real soul destroying stuff).
F3 is just an introduction and is about at AAT level IV. F7 gets a bit more involved and is at proper accountancy level of studies which will set you up for understanding why things go where in limited company accounts.
I don't know if it's just me but sometimes when I read other bodies materials it seems that you learn how to do things but not why you are doing them that way so you don't understand why or how similar companies with similar turnover can legitimately have accounts that look totally different due to the choice qand application of accounting policies.
On the reading peoples accounts, don't forget that even reading them the day after they're published you're looking at information that is invariably at least nine months out of date making them about as useful as a chocolate tea pot for decision making purposes.
Management accounts are a lot more useful but of coursee they don't get filed away at companies house.
Also, reading your post. You seem to concentrate on the share capital but you need to be looking at the retained earnings section of the share capital and reserves.
Don't forget that for limited companies shares are not publicly traded so whether it's £1 or £100 all that it really relates to is the percentage ownership. (If I own 1 £1 share in a company with £1 share capital I own more of that company than someone who owns £50 share capital in a company with £100 share capaital. The share capital only being one part of the share capital and reserves).
It really is worth your time and investment looking at some of the meatier study texts if you want to improve your understanding of the ins and out of financial statements.
Also worth a read is ACCA paper F4 on Corporate and Business law which covers limited companies and the case law around them in depth.
Hope that I've convinced you to venture over to the dark side,
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Hi Shaun - my point about the shares was just to point out that real life situations are nothing like what you learn in books. I do look at the retained earnings side of things and see a few of them have negative figures for the two years shown and then in the notes there is some kind of explanation (excuse) as to why the company can continue. The retained earnings don't tell you that much either as one company could have had a massive profit and taken it all back out again in dividends and another company just made a small profit.
I am getting more and more addicted to the study side of things but realise I need money to fund this so I will need to "start up" in the next couple of weeks.
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Never buy black socks from a normal shop. They shaft you every time.
You could still be their registered office, Kris even if you wanted to out-source the work. Tim
Hi Tim,
I did look at that, but it appears the ICB don't allow it. You can't outsource work that you are not qualified to do apparently. Unless I am grasping it wrong.
Possibly means that you can't directly profit from outsourcing but if a business grows because of careful financial planning, then everyone benefits. Tim
Having come into accountancy through the tax door I was not confident about statutory accounts. However, this is something that can be systemised, especially if you stick to a certain type of client. It is not that difficult.
I miust admit this is something I was thinking about a while ago, but I haven't gone any further with it, as I'm not that big yet and I don't employ anyone, so wasn't sure if it would have sounded better being LTD or just self employed which I am now. If I went LTD I would have to get someone to do my end of yr stuff as although I am doing AAT level 4 currently I have not got to the tax stuff yet.
Certainly with the quick calculations I did, it never seemed more expensive with a limited company. Regardless of whether I made £80 profit or £80,000.
It's just whether the extra work is worth it. Certainly worth thinking about.
You could still be their registered office, Kris even if you wanted to out-source the work. Tim
Hi Tim,
I did look at that, but it appears the ICB don't allow it. You can't outsource work that you are not qualified to do apparently. Unless I am grasping it wrong.
Kris
Hi Kris,
Sorry just really quickly flicking through posts as got a meeting soon, but not sure what this is refering to?
Do you mean being someone elses registered address? Or using a different address to your own on your practice licence?
I was talking about outsourcing the final accounts to an accountant. I took that to be what this meant:
You cannot subcontract work you are not qualified to do
Because you are responsible for the work you subcontract, your insurance will not cover you for any work you are not normally covered to do by the Institute, even if the person you subcontract is covered. For example, you cannot take on a client and subcontract their payroll work if you are not qualified to do payroll.
My only problem with it is there are nosey gits like me about and websites Duedil.com.
Ouch. I knew they were publicly available information, but I didn't know there was a website that freely provide collected information all in one place.
Went limited and not looked back. For a small company like mine it's pretty straightforward to prepare stat accounts, especially if you use VT or similar.
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Stuart
Birmingham City FC - Blues is my religion St Andrews is my church
Sound about right Tim. I may well be wrong but I'd have though the ICB would encourage it's members to outsource production of final accounts until Level 4 is passed.
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Tony
Responses are intended as outline only. Formal advice should be sort from your Institutes Technical Department or a suitably qualified Accountant.
Yeh, Tony that would seem sensible. I've just come across the term 'out-workers' which I've not heard for a while. When I did deal with them, they were on a self-employed basis. Tim
I would have considered outsourcing and subcontracting to be synonymous. I assume you are suggesting that this is not the case? Perhaps the beginnings of another thread.
Just going back up the thread, I have no genius ideas for reassuring the client if you were to trade as Ltd Co and yet not encourage them to do so.
Back down the thread again, I think you're right, the term 'out-sourcing' has indeed become synonymous with sub-contracting, but originally, I'd have thought it must have been coined to mean work delegated to a different organisation. Possibly the meaning has evolved to steer clear of conotations with the building industry. I'm no English major but a more accurate synonym might be 'sub-sourcing'.
Like you, I'd like to hear if this is allowable. The client would, no doubt, need to pay the third party directly, and you would not be in a position of control.
"You cannot sub-contract work you are not qualified to do". You wouldn't be holding it out as your own work, nor profiting from it.
