Utterly confused about sole director vs self-employed

[georgiosd]

Hello,

I was self-employed a couple of years ago and now I have resumed business someone told me that registering a limited company and getting taxed as a sole directory though a bit more complicated would save me money in the long run.

So I did register and got my company name and received the HMRC letter which asks me to tell them whether I've started trading or not, etc... Going through all the tax related requirements is giving me a headache however...

I haven't sent the form back yet to say I have started doing business so I could always just declare being dormant and go back to being self-employed.

So here are my questions:

1) Does being a sole director have any benefits, tax or otherwise, versus being self-employed? If so, what are they specifically? I don't think I'll be earning more than £20,000 this year and I'd need to live on the income as I don't have any savings or other income source.

2) Is there a good guide somewhere about all the duties of a sole directory company? I find the HMRC a bit chaotic because it has information about every different case and uses quite a bit of jargon.

3) Can the software provided in diy-accounting do it "all" for me? As in, work out how much tax I need to pay, how much I can pay myself, NI etc?

Thanks everyone!

[antonycc]

Answers to 1 and 2 are a matter of opinion, I would suggest leave it as long as possible before using a limited company as there's a lot more paper work and legal responsibility. Once you are comfortable preparing a balance sheet each year....

Think about the limited company when you want to retain profits from year to year without the tax man considering these personally taxable income (you still have corporation tax on profits). A limited company become useful if other partners buy in to become share holders or you need to separate business assets from personal property.

As for question 3... The Limited Company + Payroll 5 package will do this for you but for £20K a year a the sole trader basic will help you with the much simpler Self Employment supliment to the Self Assessment forms. You'll be taxed on profits based on your trading year.

Personal advice: concentrated on what you're good at and keep admin to the minimum.

Cheers,

Antony.

[uejorj]

Ref:
Q1 - There are potential tax savings by being a director of your company rather than a sole trader BUT these advantages are being eroded each year, you say you will earn about £20,000 in the year, assuming by this you mean that there will be around £20,000 profit then you might potentially save around £1500 or so in tax and NI, however in order to do this you will have to pay yourself the maximum without incurring tax or NI (about £6200) and take the rest as dividends - which can only be taken out of profits, so technically if you take additional money each month you will need to ensure that the profits are there to take - remember also that Dividends must be calculated after corporation tax has been deducted from the profits.
In addition you will need to register as an employer and becoime an employee of your company to be able to pay yourself a wage.

Q2 - Companies House publish a basic guide on the directors responsibilities.

On the info you have provided my advice would be to operate as a sole trader and keep the company dormant, for the paperwork can be a nightmare and if you miss any corporate filing deadlines either with Companies House or HMRC there are now heavy penalties payable which simply do not exist as a sole trader - but if you do go down the sole trade route remember to register with HMRC as a sole trader within 3 months of starting or your could face a £100 penalty (download form CWF1 from HMRC website if this has not already been done) this is so HMRC can charge you your basic sole trader NI (Class2) of £2.30 pw.

Rgds

John