Agreed but running a Limited company is nothing at all like running a sole tradership with a much higher bar required. Having the time to learn what needs to be submitted, in what format, within what timeframe, etc.. is not something you do overnight.
Originally Posted by wizzard
Yes, but, as per my points above, you are only referring to the positives and not even touching on the downsides at all... My research into all of this proved significantly to me that a lot of people jump in to Limited company because of the same arguments you've given but then find out they've stuffed themselves because of things like:
A Limited Company can save you a lot in tax if you speak to the right accountant. You can claim a lot more under a limited company than you can as a sole trader.
Also a limited company is a seperate legal entity so unless you provide a personal guarantee to any loans, if the limited company goes belly up for whatever reason, your personal assets cannot be touched, unless it can be proven you've acted improperly.
I see the same arguments all of the time from people who started out not engaging an accountant and then realised it was a false economy not having one.
- The limited company MUST stay in profit, so there's no drawing out cash in a hurry because you need to pay the rent when the business is showing a loss.
... that's just an example but one that made me stop and think long and hard.
Couldn't agree more... One thing I'd definitely get is an accounts package and start inputting the information properly. Saves a LOT of headaches later on, even if short term it seems like you could do it quicker... Good analogy is touch typing... Pain in the backside to learn, requiring lots of practice, but once you have it, the time saved is phenomenal.
Yes spreadsheets are all fine and dandy if your accounting is simple. But can be prone to errors which may not be picked up.
Who said artificially? My point was to think long and hard about whether you want to aim that high as it's more than just a bump in the road.
As for artificially keeping the turnover low to avoid VAT registration is playing with fire. BTW the threshhold is now £73k.
Ok... at this point I disagree... You're making the exact same mistake I did when I thought about this (all too briefly) up until 4 months ago.
Sure there maybe an administrative headache, but worth it for the tax savings.
Yes, you are avoiding the issue of paying VAT on the items and services you buy in and sell on but you will also be adding a markup on these products and services (the value added bit) which you then have to apply tax to. If you're working for SME's that are VAT registered then this works fine and may actually be a positive, but if the end-user are Joe Public or sole-traders then it's not quite so attractive. VAT goes on top of everything... Put another way you are turned into an unpaid tax collector for the VAT man.
That's a cr*p explanation but to give a concrete example:
I have a product normally sold at £10.
Components, for arguments sake cost: £4.60 with £3.60 of that coming from within the EU so I'm paying 60p in VAT
Assume I become VAT registered
I now pay £4.00 for my components.. Great! BUT...
I now have to charge my customers 20% of the price...
Choice #1: Increase price to £12 and risk losing customers but retain profit @ £6
Choice #2: Drop price to £8.33 so the inc VAT price is now £10 but now profit is @ £4.33
Of course, if you start out VAT registered you avoid this nasty decision but it's not something you do without thinking it through.
Of course the other thing is that it's yet more paperwork to add to the administration side of things.
I harp on about the administration and costs in this because at one point recently I realised I was spending 50% of my time dealing with administration (which does not pay the bills) and not with the actual income generation side of things, ie: selling. It's a very easy trap to fall into when starting out as well because you often have that whole "this is easy" rose glass tint thing going on... Lots of hours free, few clients, low stress but as the client numbers increase and the pressure increases, you start realising time is the most precious commodity of all. In my case I had a little boy appear just as everything went nuts so not only did administration suffer but so did quality of work, support, etc... Hard lesson to learn but one that Gatt can at least plan for.
As I said earlier, on this I really couldn't agree more... I had a bookkeeper until recently and they didn't provide the information and advice that would, on reflection have saved me close to £3k in more than 5 years so I'm counting some costs there.
Speak to an accountant for them to advise on the best structure for your company.