Starting a new business. Best to go sole trader or limited company?

kissenger

kissenger

kissenger

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My OH is starting a small business (a baby spa and massage service) using a small loan. It will be part time, alongside working 3 days. We’re trying to figure out how to set up.

Limited company seems better than sole trader on paper, but more complicated especially when it comes to getting paid. Is there a generally accepted best way of setting up, and if so what is it?

I’ve read that you can pay yourself a salary as a limited company, and also take money out via dividends, but I presume neither is viable when you’re just starting out and the money has to go into the company? Also wondering how a loan to a limited company would work. I presume it’s hard to get a loan that way because the lender would have less protection given personal assets aren’t at stake.

Any other advice for a new small business owner would be appreciated.
 
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Pudney said:
Agree



Don't agree



Don't agree for different reasons.



Agree
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Can I try? I know you know your **** so can you tell me where I'm wrong?

1. Sole trader best, agreed
2. 'Should' use an accountant as statutory filings are more complicated, and an accountant may have helpful advice beyond just filing the numbers.
3. Worthwhile or not also includes expenditure levels, own knowledge of how accounts work, nature of the actual work/business, if any other employment posts that may be held (and the rest)
4. :)
 
Happy to be proven wrong but as a limited company (since 2003 ) myself I was told it needed to be a chartered accountant to submit the returns but that was a while ago so things may have changed. So even though my accounts are fairly simple I would not risk attempting to do that myself, plus the advice from an accountant can/could pay for itself.
You also need to have a business bank account not a `personal` one so higher fees and have to/best to account for how people pay you such as cash, card or Bacs.
Us limiteds did not do well Vs sole trader with the government furlough payments, although it was still welcomed, hopefully won`t need those again.
You can alway go incorporated later.
There are different benefits to either so as the business grows look into what would suit.
You could also ring the inland revenue service when you have spare time and ask for their advice :)
 
You don't need to use an accountant for a limited company.

Only if you're turnover is over a certain amount, I can't remember but it's quite a lot, then the accounts need to be audited.

That being said it would probably help if you use an accountant, it would be a lot of learning otherwise and if you don't do it correctly companies House will strike you off.

With regards to the loan you can provide your personal money to the company by way of director loan, the repayment terms you can dictate how you like.
 
dl8860 said:
Can I try? I know you know your **** so can you tell me where I'm wrong?

1. Sole trader best, agreed
2. 'Should' use an accountant as statutory filings are more complicated, and an accountant may have helpful advice beyond just filing the numbers.
3. Worthwhile or not also includes expenditure levels, own knowledge of how accounts work, nature of the actual work/business, if any other employment posts that may be held (and the rest)
4. :)
Click to expand...

1. Yes
2. Even should is a bit strong, but you get the gist.
3. Lots of reasons to use a limited, strongest reason is commercial, e.g. limitation of liability or appearance to potential cusomters (i.e. some Ltds like to deal with Ltds so can make you more attractive). None of those are nessarily relevant here.
4. :D

Nobski said:
Happy to be proven wrong but as a limited company (since 2003 ) myself I was told it needed to be a chartered accountant to submit the returns but that was a while ago so things may have changed. So even though my accounts are fairly simple I would not risk attempting to do that myself, plus the advice from an accountant can/could pay for itself.
You also need to have a business bank account not a `personal` one so higher fees and have to/best to account for how people pay you such as cash, card or Bacs.
Us limiteds did not do well Vs sole trader with the government furlough payments, although it was still welcomed, hopefully won`t need those again.
You can alway go incorporated later.
There are different benefits to either so as the business grows look into what would suit.
You could also ring the inland revenue service when you have spare time and ask for their advice :)
Click to expand...

You've never needed a chartered accountant to submit accounts/returns. If you need an accountant's report (e.g. because a bank wants it as a condition of lending) or you need an audit then those need to be done by a suitable professional. Obviously it's safer to use an accountant as sometimes we know what we're doing.
 
Pudney said:
Agree



Don't agree



Don't agree for different reasons.



Agree
Click to expand...

As his reasoning seemed to be predicated on the things you've pointed out aren't necessarily correct what is the reason you're suggesting sole trader here? Just less faff in general for not much/any savings?
 
dowie said:
As his reasoning seemed to be predicated on the things you've pointed out aren't necessarily correct what is the reason you're suggesting sole trader here? Just less faff in general for not much/any savings?
Click to expand...

The commercial advantages of a Ltd are unlikely to be relevant and the additional costs/time associated with a Ltd makes it likely to be not worth it.

I suppose the one thing I haven't considered and could be relevant is the impact on tax credits. A Ltd could actually be useful then depending on what the OH is getting.
 
Sole trader.
Don't file this new business with HMRC yet.
Don't become VAT registered yet.

Give the business 3 years and see if it's working/making profit and then consider LTD if you're ready to take on all that hassle/expense.
 
Sorry for the thread revive, but just wanted to ask for a bit more advice.

My other half is having second thoughts about this business due to the cost of living crisis. She’s basically worried there won’t be the custom there for a ‘luxury’ service.

What do you guys think? Wrong time to start a business like this?
 
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