Sole Trader vs Limited Company

[LongCompton]

Hi All,

I'm new here, so please be kind

I'm thinking of leaving one of the large ERP companies to go work for myself. I have been here now for a number of years and decided internal politics, many changes etc it is time to move on.

I cannot make my mind up about which route to go down in terms of how I setup.

I have looked at my potential earnings and there doesn't seem to be much between ST vs LTD, given the IR35 stuff - ST seems to be winning slightly.

So a couple of questions;

1) Are clients less likely to deal with me if I'm a ST vs LTD?
2) Is there anything obvious I am missing?

Thanks

[Old Greg]

Hi All,

I'm new here, so please be kind

I'm thinking of leaving one of the large ERP companies to go work for myself. I have been here now for a number of years and decided internal politics, many changes etc it is time to move on.

I cannot make my mind up about which route to go down in terms of how I setup.

I have looked at my potential earnings and there doesn't seem to be much between ST vs LTD, given the IR35 stuff - ST seems to be winning slightly.

So a couple of questions;

1) Are clients less likely to deal with me if I'm a ST vs LTD?
2) Is there anything obvious I am missing?

Thanks

1. Very much so.
2. No. 1 covers it.

[northernladuk]

1) Are clients less likely to deal with me if I'm a ST vs LTD?

Agents won't deal with sole traders due to some debt transfer and other obligations that come their way.

2) Is there anything obvious I am missing?

The newbie guides to the right.
The search method as described in the FAQ section.
A basic grasp of how to use Google.

HTH

[WordIsBond]

The 'Limited' in Limited Company is for 'limited liability'. Depending on what you are doing that could be pretty important.

How many contacts do you have? Will you be able to go to them and get work? If you are going through agencies you'll almost always need a Ltd. If you are going direct to people you know, it may not matter as much. Even then, clients don't want to be on the hook for employment rights, holiday pay, etc, because you or HMRC decide later you were actually an employee. Depending on contract length and structure, this may or may not be an issue.

If you are pretty certain you are always going to be inside IR35, your best bet is to probably go umbrella. If you are going to be outside IR35 half the time or more, Ltd Co is definitely better.

[LongCompton]

The 'Limited' in Limited Company is for 'limited liability'. Depending on what you are doing that could be pretty important.

How many contacts do you have? Will you be able to go to them and get work? If you are going through agencies you'll almost always need a Ltd. If you are going direct to people you know, it may not matter as much. Even then, clients don't want to be on the hook for employment rights, holiday pay, etc, because you or HMRC decide later you were actually an employee. Depending on contract length and structure, this may or may not be an issue.

If you are pretty certain you are always going to be inside IR35, your best bet is to probably go umbrella. If you are going to be outside IR35 half the time or more, Ltd Co is definitely better.

Thank you, very useful.

I have about 20 contacts at the moment who would like to use myself. A lot of this work will be in dribs and drabs - so could be 2 days on Week 1 at Client A, 1 day at Client B and 2 days at Client C. This could vary each week between all of these clients.

All the work is direct at the moment.

[WordIsBond]

Thank you, very useful.

I have about 20 contacts at the moment who would like to use myself. A lot of this work will be in dribs and drabs - so could be 2 days on Week 1 at Client A, 1 day at Client B and 2 days at Client C. This could vary each week between all of these clients.

All the work is direct at the moment.

Then they probably won't be too concerned about an employment claim, later. And you probably don't HAVE to be a limited company. But honestly, this is almost certainly outside IR35, if you are bouncing around from client to client and have apparently multiple concurrent clients. (I do similarly).

Why do you think it would be inside IR35?

If you are outside IR35, and your annual revenue exceeds about £30K, Ltd is going to be much more tax efficient. That's even more the case if you are married and your spouse has no income -- in that case, you and spouse own equal shares and the tax savings become much, much higher.

[LongCompton]

Then they probably won't be too concerned about an employment claim, later. And you probably don't HAVE to be a limited company. But honestly, this is almost certainly outside IR35, if you are bouncing around from client to client and have apparently multiple concurrent clients. (I do similarly).

Why do you think it would be inside IR35?

If you are outside IR35, and your annual revenue exceeds about £30K, Ltd is going to be much more tax efficient. That's even more the case if you are married and your spouse has no income -- in that case, you and spouse own equal shares and the tax savings become much, much higher.

Thank you

No sorry I didn't think I would be in IR35, but I thought sole trader stopped any questions more so than a LTD company.

Suppose that is true for my wife, food for thought - just all extra hassle but maybe worthwhile! Thanks

[WordIsBond]

No sorry I didn't think I would be in IR35, but I thought sole trader stopped any questions more so than a LTD company.

Suppose that is true for my wife, food for thought - just all extra hassle but maybe worthwhile! Thanks

Ok. Right sidebar, near the top, click on First Timers. It's pretty clear you have some learning to do, do it now before you start and make mistakes. There's also guides there on Limited Companies, Dividends, and IR35/S660/BN66.

If your wife is not employed, read the last one and understand it. The standard recommendation is to make her a shareholder and a director, for reasons discussed ad nauseum. Google 'wife as shareholder site:contractoruk.com'.

Sole trader stops IR35 questions but costs more tax. If you are afraid of IR35 questions but are sure you are outside it, join IPSE and buy QDOS TLC35 insurance. Look into these now before you start. I have neither, now. I do have Tax Investigation Cover, but not the TLC35, waste of money for me. I'm not going to lose an IR35 case. Doesn't sound like you would likely do so, either.