As a newbie who probably will end up working for a company once he's got enough training/certification to persuade someone to take a chance with him, nevertheless it would be nice if one day I work for myself. Or perhaps some opportunistic work will come along from those friends who have their own businesses.
One thought is to set up a company through which I can work if the situation presents itself, and, having read about the differences between sole trading and LLP and limited companies, I wonder if it would be a good idea to set up an LTD for that purpose.
I know it's possible to buy pre-registed, "off the shelf" companies for a relatively small amount of money, and if I don't end up doing much with it then the paperwork required at the end end of the tax year - a whole year away! - is manageable. At least, in a year's time I should be trained enough to do my own books!
So, my question is, is there any reason that this is not a good idea? Or any advice that people can offer to smooth the process over?
Only obligations if it is dormant during the year is to submit accounts with companies house (you could do a dormant set online) and get clearance from HMRC to get a dispensation from lodging a CT600 given the company is dormant. Normally the dispensation lasts for 5 years but if you start trading throught the company you need to let HMRC know.
Only costs would be doing an annual return. Which i think is about £15 if you do online and if things dont work out you can always wind up the company which costs about £10.
There's not a clear advantage to set up as a company on day one unless you want to either:
*Create the image that you are a bigger business than you actually are
*Protect the rights to a company name you want to use
*Provide legal protection for yourself regarding potential credit risks if you are obtaining finance
Most people run as a sole trader and incorporate when it makes sense. It's not particularly tax advantageous (fairly neutral) when you way up extra costs etc unless you are goint to hit higher rates.
If you incorporate later on you can take advantage of the goodwill you have built up and effectively sell it to the company when/if you go Ltd (I can elaborate if needed).
So don't get too bogged down worrying about this as you are not losing out by kkeeping it as a S/T at the start.
One thought I had about becoming something other than a sole trader is the VAT side. I might not have understood this correctly, but if I were to set up as an LTD and voluntarily register for VAT, then I could reclaim all the VAT spent on things like books, training courses, software purchases, professional memberships, etc - startup costs would seem to be sizeable, and I have a limited budget - so it seems that the savings could work out as more than the costs of being an LTD instead of just being a sole trader. But stevo5678, you reckon it doesn't?
Another was to do with liability. As a beginner, it's more likely I'll get something wrong! So I'd like to put something in place to limit my liability somehow. I guess I can buy something to cover that, perhaps, but again, if that has VAT then that's an extra saving to be made.
You can voluntarily register for VAT either as a sole trader or LTD company. Though remember that although you can reclaim VAT on your costs by being VAT registered you have charge VAT on your sales (effectively give 1/6 of your sales invoice to HMRC).
A major advantage of being LTD over a sole trader is that the liability is only limited to the assets that are in the company (unless you have given some personal guarantee).
It will depend on what your business is as to whether there is any risk to being limited or not.
If you business is that of accountant/bookkeeper then i suggest that you do a lot more study/exams before you even contemplate offering your services if you are unaware of the basic implication of voluntarily registering for VAT.
Oh yes, I'm certainly at the start of my studies! Just trying to think ahead a bit. I'm sure in a while I'll understand enough about it all to make an informed decision.
In the meantime, many thanks for the feedback and advice! This is why I'm here.
I might not have understood this correctly, but if I were to set up as an LTD and voluntarily register for VAT, then I could reclaim all the VAT spent on things like books, training courses, software purchases, professional memberships, etc
Your first sentence is right here Rob, there are no differences to claiming vat for a co or non co, same rules apply. Plus there is no vat on subscriptions and books.
You can voluntarily register for vat as a trader aswell as a co.
Costs depends on who/where/how you get your accounts done if you go Ltd.
You should have PII if your limited or a ST. The extra protection tends to be handy where the business has lots of debt, but even then alot of financers will expect directors of a Co to make personal gurantees on loans.
It's not a big issue if you want to go Ltd just saying it's not particularly any more advantageous. Plus like I said there can be tax savings if you defer going Ltd and build up clients first.
It's more traditional/expected custom for professional service firms to be partnership, sole trader or LLP, rather than Ltd. I think that customer' expectation alone should be a factor in deciding. I wouldn't think of limiting your liability as being a significant factor; aside from ethics, if thing went wrong you'd have no career afterward, so you need to be 100% sure that you won't make big errors!! The biggest difference is tax, and NI (in that you pay yourself profits as dividend so no NI).
