DavidBarry(lford)AccountantsTaxadvisers - ltd companies vs sole trader

Ltd. Companies vs Sole Traders

Email Out: 29 November 2010

Leading from my two earlier emails has led me further to believe that the limited company structure is inappropriate to your needs.

You may remember me telling you that a major advantage of a limited company (there are plenty downsides) is that you are a paid employee of the company; therefore qualify for a P60 form after the end of the year and so theoretically can if your work dried up be able to claim social security benefit and working tax credits.

Also as important is that you would receive a far better retirement pension as a paid employee that as a sole trader even for the same level of national insurance contribution. I have always thought this unfair but then my job is to advise on things as they are and not therefore be political.

The Coalition government have plans laid out that from 2015 all taxpayers provided their contributions are up-to-date (and yours are) will qualify for the same state pension at £140 per week that completely negates previous advice given. This is what makes the study of taxation dynamic in that all accountants must be aware of all up-to-date legislation and thinking.

If this does indeed become the case then it negates a very powerful incentive for one-band limited companies that are really sole traders to de-register and instead trade self-employed on an unlimited basis.

Email Out: 29 November 2010

Obviously, I am disappointed with this email although you had said before that the fees were high in relation to the business.

I had thought deeply about this although we have not spoken recently and had plans to reduce them this year in the light of your bookkeeper better understanding how the books and records of the business should be kept. Of course the new accountants whoever they maybe will reap the rewards of my efforts by having a much better accountancy system in place in respect with you better operating the business account and the excel sheets being more relevant to the business.

If you had telephoned me again and said that you wanted to discuss in more depth how the fees can be reduced then my advice as I said at the telephone would be:

Extract all assets/liabilities of the Ltd company; (do not on any account dissolve the company) let the company become dormant and later then dissolve-much better and a cheaper option for you.

You would then introduce these as assets into a sole trader business and your accounts would then be drawn up on a sole trader business basis, possibly to 31 October being the end of the summer when turnover is likely to decline.

Therefore, there would then be just one accountancy fee (far reduced for a sole trader) instead of fees for limited company/payroll/tax return/annual return.

What you are really writing to me is not that fees are too high but that your business structure is plainly wrong for the size of the business. That is my honest assessment.

Please note that all fees for limited companies are likely to increase with the advent of IXBRL which is an unfair HMRC cost to small limited companies only; but we are all used to this.

I hope that you enjoyed being a client of this practice. You learned from me how to better operate the business in terms of books and records, salary structure, dividend policy and directors loan. (Please consider an alternate trading structure.) I also advised you on maximising at nil cost your retirement pension and I hope that you found this information invaluable.

Regarding distance I have several clients who post their documents to me (there is no need to personally deliver them) and I then post these back.

Not everything is price. As I said to you on countless occasions you must look at accountancy fees plus tax bills. Sometimes a little bit more time spent on the figures yields a much larger saving in tax. When making the comparison next year (if in fact you do change) then you must compare tax plus fees and not just fees.

My Regards,

David Barry