Thinking of going Limited?
My finance presentation to Mumpreneurs, in association with Buss Murton solicitors, highlighted the interest there is in the possibility of going limited. While many small businesses have started off as sole traders they have evolved and grown to the extent that they should be considering whether this is the best structure for them. I have recently been approached by a prospective client turning over £500k+ and making reasonable profits as a sole trader. There are a number of issues which are important here:
- If a big contract goes wrong, any liability (aside from any covered by insurance) is down to you personally, there is no limitation of liability
- You are potentially paying tax on profits which have been retained in the company and you personally have not benefitted from
- Even if you are drawing all of the profits you are still paying higher tax than as a limited company
While this would almost certainly be benficial for that business it also applies businesses making £20-£30k profits. A limited company is not necessarily the dream answer however, some of the drawbacks are:
- It is a more complicated and structure
- Consequently it will cost more to run
- Other obligations include completing a corporation tax return within 12 months of the year end, sending accounts to companies House within 9 months and sending an Annual Return each anniversary of incorporation.
- Even if you are the only employee you will have to maintain and run a PAYE system, pay any tax quarterly or monthly and submit an annual P35 Return by 19 May
- There are legal obligations which you have as a director of the company
So how do you go about it?
- Firstly you will have to decide on a name and see if it available at Companies House, it must be different to any other on the register and the rules are quite stringent on similar names (eg adding UK to a name)
- For consistency make sure that any web address or trade mark is available if you want them to be the same as the company name
- Register the company at Companies House or get a professional such as your accountant to do it for you
- Register the company for corporation tax and PAYE
- If turnover is above or expected to be above the VAT limit, register for VAT too. If you are transferring from an existing company you can retain the VAT number. In some situations it may be beneficial to register even if you are under the limit
- Advise all of your customers and suppliers of the name so that official paperwork is all issued in the new name, you may also have to revisit existing contracts
- Record keeping should be completed regularly so you always know how the company is doing, you may well be doing this anyway as the business has grown
The details above may not include all of the issues you need to consider and you should seek professional advice which is appropriate to your situation before taking any action.
Alastair Wood, AW Accounting “speaking your language”
