Sole Trader or Limited Company?

with regard to LTD companies and employment agencies.

As an x divisional manager in recruitment we found that even employing Ltd companies could be a problem, particularly ones such as Sterling, they let you set up a company within there holding company (thats the best way of explainign it) and they then invoice the company and take there cut and pay you. And depending on the TAX man in the area your working depends on how he reads the rules.
(they do read them differently)

I would always tell people the best way is PAYE, as you never owe the tax man he always owes you , and even if you contract through PAYE you can claim back tax and so forth when the contract ends.

So why am I a Ltd company, well I employ people on PAYE and although i am the Managing Director, i am still on PAYE from the company.

Makes life so much easier.

Agencies act 1988 makes the Ltd company route the most sensible for most agencies with high value (> £10 hour)contractors. PAYE is an option but who wants a £40 and hour chap you have to pay holiday pay to?

Most large companies with any sense don't like SE because if the person skips the country / goes bankrupt without paying Gordon the client company gets to pay tax & NI on the money.

Add to this you get the first £10,000 profit free of corporation tax and it makes sense to consider Ltd. However Gordon is about to change all that with IR591.

Hmmm, not sure about that. I'm a sole trader and have just finished a contract - there was never any problem with using me, in fact the company I worked for never mentioned it.

However, having said that it was my first contract so don't know if it's generally acceptable to be a sole trader in this line of business. I do know that I would prefer to be a company and am looking into setting it up.

V.

Employment agencies won't touch Sole Traders with a barge pole. There are laws in place preventing them from hiring someone in that capacity.

It's PAYE or Ltd Co. only, I'm afraid.

Having said that, more and more agents are accepting PAYE contractors, these days. It is easier for many people as there is absolutely no comback from the IR - provided the agent has given you a genuine payslip.

The really big agents, Reed & the like, simply classify you as a "temp". Going PAYE has it's disadvantages for them, though, as they now have to give you holiday and other benefits, which makes calculations more difficult for them. But, for very low paid PAYE temps, Reed run a travel benefit plan. They charge the temp a levy of a pound or so on the wages, in order to save the temp 5 or 6 pounds in Tax. They only apply the charge if the calculations work in the Temps favour!!!

As an IT consultant, the only real advantage of being Ltd is that, if you are not, no-one will employ you.

It's a factor of the market that working, on client site, as an SE IT consultant is virtually impossible.

The reason this has come about is because of certain rules in Tax leglislation that affect this manner of working. It is theoretically possible to structure the contract so that the effect of these rules can be avoided, but no client will bother to do this for the engagement of one specific SE contractor, when there is the simple alternative of choosing someone else.

If you work at home the position is different, but few people manage to crack this nut.

tim

Can anyone tell me what the advantages and disadvantages of being a Sole Trader or Limited Company are? I have friends who have their own businesses, and although they are not in IT, they say that I do not need to have a Limited Company. But obviously, being new to the game, I have no idea.

Any help would be greatly appreciated.

Cheers,

Andrew