Going from sole trader to ltd

[jamscunny]

So I've been trading as a sole trader for 5 years. Gradually been growing. I have 1 plumber an 1 apprentice. Turnover about 110k gross. If just been approached by an accountant. Some one I know from the gym. Nice chap. Had a chat and he advises I switch to him and go ltd. he said about going on a flat rate scheme to pay less tax. He also said why haven't my current accountants made me aware of this scheme.

At the moment my current accountants charge me £500/£600 a year. They don't get in contact about any thing. Just leave it to me to bring my receipts in. Going to ltd I believe is more work so more of a cost. The chap who I sat down with said around £1600.

I just want a second opinion. I can't say I'm happy with my current accountant. When I went vat registered they didn't make it clear when to bring receipts in....so after 5 months, I'd spoke to people about going vat Reg.... they said about 1/4 and handing my books in. So I had to chase my accountant and got a penalty for handing them in late. Not great.

But yeah my main point is about going ltd. and this 'flat rate'.

Any advice/opinion would be massively appreciated.

 

[chappers]

The advantages of going Ltd, surround NI and corporation tax versus income tax rates, so will depend upon your profits.
Flat rate VAT also to a degree surrounds your profits in so much as how much you bill compared to VAT chargeable purchases you make for materials etc.
It's not so simple as to say you will pay less tax all depends upon how much of that was materials or other VAT rated purchases.
Your turnover of £110K would equate to a total chargeable turnover of £132K so under the flat rate scheme you would pay 9.5% of £132k=£12,540 but don't offset any of the VAT you have paid out. So the question is whether or not your annual VAT bill is greater or lower than that.
Then you need to decide whether you are going to save the extra £1000 in accountants fees.

 

[Doggit]

It definitely sounds as though you need to change you're accountant, but I'm not sure if the new one is going to do you any favours either. Have a chat to other trades locally, and see what theirs are like.

I'm not sure what you're time constraints are, but I used to use sage for my accounts, feed in the receipts, generate invoices, and then I just sent a copy of the file to the accountant at the end of the year, where he did the accounts, and then sent me a list off corrections to enter. But computerised accounts will generate your VAT figures very easily.

If you're self employed, then you pay tax and NI on your profits, but with a limited company, you'll also pay employers NI on your wages, and then you have to judges how much dividend you take out of the company, so you don't end up paying corporation tax on what's left over.

A limited company gives you protection against your creditors if the company fails, so there's pros and cons either way. You really need an accountants that's good enough to look at your books, and past accounts, and then give you a couple of worked examples for you to think about. It shouldn't take more than about an hour of their time, and could be money well spent.