Guys, my wife has been selling her self published books at craft fairs a bit over the last year as a bit of pocket money.
She now has the opportunity to take over a small shop unit.
She'll need to set up as a business.
This is where I need advice.
There appears to be setting up as a 'Sole Trader' or as 'Limited Company'. What's the best way to do this?
What are advantages & disadvantages?
Cheers
Best option is to speak to an accountant but in its most basic sense it will come down to turnover and profit.
Also related to that in the shopping centre where I have my business we have RMU (retail mobile units), basically 8x6 units with a little roof. I've seen several traders move from what appeared to be a long standing and successful rmu business into a bricks and mortar unit and get unstuck very quickly. Fixed cost overheads will mount up very quickly so look very very carefully.
The basic difference is your/her attitude to risk.
As a ST she is wholly responsible for the liabilities of he business and her own personal assets (house, car, jewellery etc) are at risk. )You can of course insure against many of these risks like public liability). The administration and cost is lower
As Ltd, the liability of the company is limited to its share issue and no individual assets exposure. There are annual returns etc to be made which carry costs and some basic set-up costs too.
It has nothing directly to do with turnover and absolutely nothing to do with profit!...............
Turn over isn't going to be huge.
The shop is actually a unit within a small centre wirh very reasonable rent. She's also allowed to sub-let space to other local artists/crafters and the council have also agreed to sub some of the rent for a few weeks as it's for local craft, artists etc.
That's the opposite of what my accountant told me. He said that the decision whether to go limited or not was down to income/expenditure and nature of the business. He advised that I have PII to cover me should anything go wrong and that my personal assets shouldn't enter in to the equation. Not saying he's right but it's what I was advised when setting up myself.Originally Posted by afcneal
I'm afraid this is incorrect. The taxation rules and NIC liability are very different in each entity. It may not apply at this stage, but if she gets to a point of making over 40k profits, there are tax advantages to being a limited company.
I'm aware the dividend rules have been tightened up a little, but it's still advantageous to be a Ltd company when/if profits get over 40k
Speaking from very recent experience.
Sorry can't agree with you there. The costs and turnover/profit involved in a business will make a big difference in whether you choose ST or LTd co. Yes all that you say about risk is correct but there is also your tax liability which is greatly affected depending on your profits. No profit no tax so the choice makes no difference. High profit and ST or Ltd can make a huge difference.You can go either way with any size of business but the vast majority tend to choose the same option with the same size business. Ltd co fees can often not be deemed justifiable for a small part time business.
It sounds like a small business so probably ST is the way to go but ask a good accountant.
If you go with the unit you may wish to have 2 companies, one to run the business and one to deal with the buildings/ lease. These may need to be Ltd to remove your personal risk if the worst happens and you're stuck with rent to pay with no business.
Speak to someone who knows as each situation will be different.
Sounds a decent set up but, as I'm sure you have/will, work on the worst case scenario (so no rent sub etc) re fixed outgoings and current incomings or projected incoming and the time and effort needed to make sure one more than equals the other.
There is nothing to stop her starting off as a sole trader and changing to a Ltd company a year or two down the line if she sees fit. In fact there can be some tax advantages to doing this.
^This.
Nice idea in theory but in practice the landlord is very likely to want a personal guarantee to protect himself.
I think turnover & profit are very relevant - Ltd will cost more in accountants, set up fees etc. but gives a lot more flexibility in how/when pay yourself. The numbers themselves are of course fairly neutral, but with an Ltd you can offset bad years, top up pension in good years etc. + flex dividends as mentioned so if profit goes above 40k I would certainly start to look at changing to a Ltd for the flexibility.
Like the others, totally disagree with this. Profit is and always has been a huge factor.
She needs an accountant, either way. I've come to the conclusion that running a business without accountancy support is like doing surgery on yourself: ill-advised, painful, and you'll soon realise you should have left the job to a professional.
Tightened up a little???
Assuming the rules go through, and they still aren't even published despite theoretically being in place from 06/04, the tax advantages of paying by way of dividends are tightened up enormously.
Speaking from the experience of being an accountant.
^^ I didn't want to be the merchant of doom ;-)
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