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Is being a Sole Trader or Limited company best?

Discussion in 'General Business Forum:' started by Vanessa, Jun 17, 2014.

  1. Vanessa

    Vanessa Member

    Hi there, I’m looking for some advice about setting myself up as a freelance graphic designer…

    I’m a little stumped about whether to become a sole trader, or a limited company – I’m not planning on creating a company anywhere down the line, it will just be me freelancing on the side of other full or part time work, so the LTD route seems a bit much. However I am very risk-averse so am worried that by being a sole trader I could risk losing a lot if something awful happens!

    I’m interested to know how other designers are set up and what works for you?

    I have looked into personal indemnity insurance if I were to go down the sole trader route, so should be covered if I do ‘get into trouble’ – from other sole traders’ perspectives, how do you protect yourself / personal assets?

    What’s putting me off the LTD company is all the paperwork and complex ‘business stuff’ as
    I have never managed a business before and what I have researched seems quite full on, so if anyone has gone down this route, any tips on how to make this as simple and painless as possible?

    I realise this is probably a lot to ask on a forum, so if anyone has any suggestions of good advice routes for designers, or contacts I can try instead, that would be really helpful!

    Thanks, any help greatly appreciated.
  2. The Simulator

    The Simulator Active Member

    Personally I don't see the point in being a LTD company. I've been a sole trader now for 36 months with no issues what soever.

    Easy to do your own books and keep on top of things like that. I've never opted for indemnity insurance as there's really nothing I can do that people will have a chance to come back it me for. My contracts clearly state what will and what won't be received and that no guarantees can be made that the work created will be exactly what they want.

    The only thing I would say is that it's worthwhile joining the FSB. Gives a nice bit of peace of mind that if someone doesn't pay you they will chase it for you, and deal with the tax-man if he comes after you for some reason.
  3. Levi

    Levi Moderator Staff Member

    if it's you there isn't any real reason to go LTD in my opinion. I know someone who started LTD but went and changed to sole trader due to additional costs etc.
  4. Vanessa

    Vanessa Member

    Thanks both, I'll check out FSB - I'm probably being ridiculously over cautious, I'm just worried that being so new to this, if I end up with anyone contesting anything like copyright, trademarks, plagiarism, missed errors or any other 'failures' I want my finances to be protected!

    Not that I'm intending to do any of this of course, I'm just a 'cover every base' type!
  5. wac

    wac Senior Member

    If you've got a good head for taxes and laws then there's no harm in going ltd and doing all the paperwork yourself. If like most of us you're not however then going limited means paying more to your accountant each year which might not be the best bet if you're just getting started.

    I'm on the fence about this myself. My accountant keeps encouraging me to go ltd but then again they are biased.

    I think this topic was covered more comprehensively in a much earlier thread...
    Vanessa likes this.
  6. EmpathLouie

    EmpathLouie New Member

    Hi Vanessa ,

    There is a calculator that shows how much more money you could save as a limited:

    If this is your first time going solo, sole trader could be an option as you can become limited later. If you get a job that requires a LTD, I believe you can always use the services of an umbrella company.

    I trade as a limited company and my initial experience with the lot of web accountancy services out there was bad to the point that I almost gave up 3 years ago. Keep in mind you want to have an accountant you can trust.

    Best of luck!
    Vanessa likes this.
  7. Vanessa

    Vanessa Member

    Great thanks, I'd heard it was quite tricky to go Ltd once you've been a sole trader but this advice helps, I will definitely be getting a good accountant as well as some time with a lawyer to help me with contracts as I have no head for taxes and law stuff so need all the help I can get!

    Thanks for the calculator, will check that out!
  8. I would honestly just stick as a sole trader for now. When you're working as a full time freelancer and earning more than £20k gross p/a then I would maybe consider it but until then, I just don't see the point.

    I've been freelancing for just over two years now and at this point I have very little to worry about. As far as I'm aware, the biggest risk is having a client try to sue you for not providing deliverables within the agreed upon time frame or to a sufficient standard. As long as you do your job well and don't treat clients like idiots, then there's not much else that can go wrong. I do web hosting as well, so there are potential issues that could crop up, such as a company's email systems going down for a day but even then it's really not an issue if you know what you're doing - and not something you presumably have to worry about!

    The Simulator mentions contracts and that's all it's really about. I call them project agreements and have written them all my self, for the most part in a way that normal people can understand it! I studied law at college and have made extensive use of the many materials freely available on the internet. Would you believe that quite a few large agencies will simply allow people to download their legal forms for free. The whole point is to simply narrow down what the client wants, work out whether you can provide that service and how long it will take you, and then get them to commit to paying the right amount, by the right time. Once that's all down in writing, as long as you complete the work on time there's not much else that can go wrong.

    A lot of people think they can get by without using project agreements, but this really is one of the main things that separates professionals from amateurs. You might be able to get away with it for a couple of years but it will bite you in the arse sooner or later!

    I used to be a member of FSB and honestly, it was not what I was hoping for. Whilst the free legal help and tax insurance was great, I simply haven't needed any of it. I found that a lot of the other members were of the older generations and not very forward thinking - and that is how I would describe the FSB in general. They're a lobbying group and their priorities are to raise funds to get politicians to do what they want, less so about helping to build SME's.

    I joined an alternative group called Business Scene a little over a year ago and I have to say, it's a much better group. They have a much better benefits package compared to FSB as well, but more importantly their priorities are to help their members grow - and it really comes across in the members you meet at the popular (FSB networking in my area was almost non existent) networking events they hold. I have actually met and spoken with the founder of Business Scene, a very good and well known speaker, can't say the same for whoever runs FSB.

    Anyway, enough about that. If you have any other questions, just ask away!
  9. Russell

    Russell Member

    All good advice. I was freelance for 3 years and now have been set up as a Ltd company for 3 years. If you're starting out or freelancing as a side project there are way more drawbacks then benefits to going Ltd straight off.

    The real benefit to being Ltd as Sean says is when you're annual net income gets higher. A Ltd company set up is generally more tax efficient but it needs to outweigh the extra accounting costs to be worth while.

    It's not a tricky process to go Ltd, and no more difficult for sole traders to convert than anyone else but an unnecessary step for you Vanessa at this stage in my opinion.
  10. Vanessa

    Vanessa Member

    Thanks Sean, that's really useful, and Russell, great to hear from someone who's done both routes -sounds like sole trader is for me! I will have many questions i'm sure so thanks all, expect more soon ;)
  11. doomain

    doomain New Member

    Being a limited company can be beneficial for tax purposes but only once you reach a certain level of profit (rough guide here) starting off as a sole trader is probably more sensible in your situation. It's simple to change further down the line if need be too so nothing to worry about there.

    As suggested above, as long as you have clear agreements in place with clients then there are very few issues which you could encounter that should cause you to worry about personal liability.
    Vanessa likes this.
  12. Tony Hardy

    Tony Hardy Guest

    Hi Vanessa,

    I've been set up as a sole trader since I started almost 2 years ago, however, I'm about to go Ltd. When your income hits a certain point, it's advisable to go Ltd to a) get better tax breaks and b ) deal with National Insurance in a much more efficient way.

    I do have an accountant and have had since day 1, because honestly, I can't be bothered with all the stress and hassle that goes along with doing it all yourself.

    Being Ltd also protects you incase you go bust or anything along those lines. With a Ltd company, that would fold and you wouldn't be liable. Unlike when you're a sole trader.

    There are additional costs to going Ltd (nearly double in accountancy fees, and the one off fee to register, apx £150.)

    If I were you, Sole Trader for the time being, then once it's working out, step it up.
    Vanessa likes this.

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