Limited Company Vs Sole Trader?

[Rubyrose]

I'm starting up a small business. The product would be advisory services. I imagine the turnover would be small to start with and I would do this outside of my day job. I would be the only person working for/running the business.

I registered the company name and it automatically did it as Ltd, which I didn't think of at the time but now I'm wondering if I should have done it as a sole trader instead?

I need advice sort of covering the pros and cons. I've looked online and it's pretty complicated so please don't paste links... I need it broken down for me.

Thanks,
RR

[Buenchico]

You need to ask yourself whether you could end up in a position whereby the business has massive debts which you won't be able to service.

As an example, my friend was running a plumbing business and accepted a big contract from a customer. He paid out loads of money for materials, knowing that he could pass the costs onto the customer in his final invoice for the work. However the customer had financial difficulties and declared himself bankrupt, leaving my friend with loads of debts and no means of paying them. That, in turn, forced my friend into bankruptcy himself. (Fortunately he was only renting his home. If he'd been a home-owner he'd have lost his home through the bankruptcy).

If my friend had been running his business as a limited company he would have been able to put it into liquidation, with no affect whatsoever upon his personal finances.

So, if a problem with your business could leave you facing personal bankruptcy if you operated as as a sole trader, you definitely NEED to operate the business as a limited company.

However if such a situation couldn't occur (which seems unlikely when providing a service which doesn't require large purchases of supplies) then operating as a limited company just seems to be to be adding unnecessary complications to the way you'll be working (such as submitting properly audited annual accounts to Companies House).

Another example of the complications of running a limited company is that you have to submit BOTH 'employer' and 'employee' figures to HMRC. i.e. as a director, you'll be an employee of the company, so you'll have to pay PAYE. However as the owner of the business you'll also be responsible for the employer's side of PAYE (and National Insurance) arrangements, which means a lot of form-filling. (Written from experience!).

As I see it, the only type of 'registration' you need is with HMRC as operating a business (on a self-employed basis). That's totally different to registering a limited company at Companies House (which I don't think you needed to do anyway). You should note however that HMRC won't allow you to register a (self-employed) business until you're ALREADY trading; you can't do it in advance.

[Rubyrose]

Thank you. I doubt very much the company could get into debt seeing as the service I am providing is already paid for and in my head. So I think sole trader is the way to go, but now I have no idea how to do it as I registered the company name as a limited. I can dissolve it, although I'm not sure what that means as will it go down as a failure or just that I've cancelled the name?
Or if I leave it dormant for a year it'll get dissolved anyway. Can I trade under the Ltd company name as a sole trader? The rules say you can't use a company name already in use but if I own that company name? I'm so confused. Also, can I be a sole trader and still work full time being employed by someone else?
RR

[TheChair]

"Can I trade under the Ltd company name as a sole trader?"
Definitely not including the word Limited. You can call your self "Ruby Rose trading as " if you want but it doesn't look great.

When I first went self-employed as a consultant, my letterhead said " & Associates", which covers you if you want to subcontract, or consult with others, and makes you look a bit bigger than you really are :-)

Just leave the company dormant, or sell it, or dissolve it. It doesn't matter much.
As a consultant, a limited company really is of no use to you.

The other name for Sole Trader is Self Employed, and yes, (provided your contract of employment doesn't forbid it) you can be both employed and self-employed simultaneously.

[thugulike]

If you have a Ltd company you have to submit audited accounts to Companies House. This is expensive and they are a pain in the neck. Unless you need to borrow money I would stay as a sole trader. That way you can keep simple accounts yourself to submit to HMRC. I have a consultancy business and I changed from Ltd to sole trader a few years ago

[Rubyrose]

Thanks everyone. So now, the question is, how do I become a sole trader?
I registered the company name as Ltd but I e not started doing anything yet and my public liability insurance doesn't kick in until Monday. How do I just change it all?
If I leave the Ltd company name as dormant then it'll be dissolved in a year but HMRC will still contact me about it. If I dissolve it myself I have to pay £50 for it.
RR