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Jeremy Aldermartin
Jeremy Aldermartin, Solicitor
Category: Law
Satisfied Customers: 5438
Experience:  Dual qualified Solicitor and Attorney
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I need advice about what is best to do for my LTD company,

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i need advice about what is best to do for my LTD company
JA: Where are you? It matters because laws vary by location.
Customer: London
JA: What steps have you taken so far?
Customer: I have a LTD company
JA: Anything else you want the Lawyer to know before I connect you?
Customer: No profit - very small

Hello, this is Jim and I am a dual-qualified lawyer (UK and Republic of Ireland) and happy to help you today.

What would you like to know about the company?

Customer: replied 5 months ago.
Hi - I also have sort of business related questions so I wonder if you can help me with those too.Basically I opened a LTD company in October 2018 for my clothing brand. I don't make any money from it yet, and have made barely any sales. I initially got advice from different people saying different things - some advised I should open a LTD company straight away and some advised I didn't need to.At the moment I am also self-employed and am paying an accountant to file my SE accounts and LTD company accounts. At present I feel like I don't need to spending this kind of money. What do you think would be the best thing to do? I would ideally like to keep my LTD company so could I make it dormant? Also I do have a large amount of outgoings going through my LTD company like manufacturing and materials and so on.

Hi there, a limited company's main advantage is that you have protection - as a director you are only liable to the amount of share capital paid up (£1 is the minimum for a limited company), so if there was ever a problem and a customer sued, it would sue the limited company and not yourself. Corporation tax is payable at 19% for profits up to £300,000.

Whereas for a sole trader, you are personally liable if things go wrong and you pay income tax instead - you could use an accountant but if the profits are low then it shouldn't be required.

You can make the limited company dormant if it is not currently trading. It may be as well to continue trading as a sole trader and if things improve (you make sales and profits) then consider going to a limited company with the added protection it gives you. You do not say if you are in this alone or if you have business partners?.

Customer: replied 5 months ago.
Hi - I am in this entirely alone. It is my small brand that I have started - I don't pay anyone, there are no shareholders - it is a small online shop. I understand that the best purpose of having a LTD company is incase someone was to sue or something, but not too much can go wrong with clothing.Over the last year I've spent about £10,000 of expenses and made only a few sales. I haven't made any profit and won't for a while yet I don't think. My accountant advised me that keeping a LTD company is the best thing as I will be making sales in the future, but I feel this may be only necessary once I start to make a significant number of sales. (My accountant costs me over £100 per month) so don't feel like I necessarily need one at this time? If I don't have many sales, is it easy enough to file my own LTD company tax return and keep it going? Or is it just better to make it dormant at this time? If I am a sole trader, do I still get taxed on only my profits too? Perhaps its better to do that...
Hi, I’ll come back to you within the hour as I’m just travelling at the moment. Thanks
Customer: replied 5 months ago.
Okay thank you, ***** ***** appreciated

Thanks for your patience. So I mentioned that there is limited liability with a limited company, which is a large benefit. Another one is only having to pay corporation tax on profits (whereas a sole trader must pay tax above their personal tax allowance - £12,500 for tax year 2019/20). There is a negative with a limited company which is the onus on the director to file annual accounts - an accountant will likely be needed for this unless you are adept at accounting and finance.

For a sole trader there isn't this burden but they still have to do a self assessment.

Also a limited company has a better perception among the general public - it looks more official to them and gives them peace of mind as director's accounts are easily obtainable online - so the health of the company is more obvious to anyone who wants to look in to the company further.

So at the moment with the fact you are not generating that much in the way of profits you may as well continue as a sole trader. If you start to generate more sales then the extra burden of operating a limited company would be worthwhile (the accountant's fee would be justified and so on).

I hope this helps – if you can please give a positive rating by clicking 5 stars (at the top of your screen), I can answer any follow up questions at no extra charge and I will be credited for helping you today.

Many thanks,

Jim

Customer: replied 5 months ago.
Thank you for your help! I will be sure to give you 5 stars. I have a few more questions though, please...- Yes I would like to keep my limited company, but at the moment cannot really justify accountants fees, so do you think the best thing to do is make the company dormant for now and then go sole trader?- Following on from this, I know you still have to submit accounts even if the company is dormant, can this be done myself? If not, do you think I'd be able to find someone cheaper? Ideally I don't want it to cost me money and at present its costing me more than it makes.- My next question is, if I am self-employed AND a sole trader, would that be two separate tax returns and two separate bank accounts needed? Sole trader is like being self employed right? You get taxed after your tax allowance but you can still claim back on expenses?

Hi, yes, you can apply to make it dormant given the situation. You can still file the accounts yourself - it is easily done. You can do it online here: www.gov.uk/file-your-company-annual-accounts

If you are self-employed, you would still be a sole trader too. You just need to file a self assessment for yourself. You can have a personal account or have a personal one and a business account (making it easier to operate as a sole trader).

Customer: replied 5 months ago.
Hi Jim, okay. My question regarding tax and deductible expenses then if I was to be sole trader and self employed....I am self employed working as a freelance PA - this is my main source of income. My deductible expenses are things like travel and a portion of my rent etc. Which aren’t too much..If I was also a sole trader for my clothing brand my expenses are very large, for example buying fabric and materials in bulk and the cost of manufacturing.If I am to only submit one tax return (sole trader and self employed together) do all the tax deductible expenses get combined? For example if I was to earn £30,000 in one year of PA freelancing and only £500 in one year of sales from my sole trader business but my expenses from both PA and clothing business were a total of £15,000 (mostly all from clothing production) then I can deduct £15,000 off my total tax?This is the part that confuses me....

Hi there, I am not a tax lawyer unfortunately, so cannot answer that for you. There are such lawyers on this site though -

I will therefore opt out to let another expert assist you with your question going forwards. Please do not reply to this message as the question will stay with me and there will be a delay with the reallocation.

Many thanks.

Hi thank you for your message, if you have two different business forms one as a limited and one as a sole trader your deductible expenses will not be combined. The deductible expenses for your limited company will need to be entered into your company accounts and deducted from from your turnover to produce your profit which is then subject to corporation tax.
Whereas, for your sole trader expenses these reduce the amount of profit on which you pay income tax.
I hope this helps, if you can please accept my answer and rate me 5 stars (in the top right of your screen) then Just Answer will credit me for helping you today.
Jeremy Aldermartin, Solicitor
Category: Law
Satisfied Customers: 5438
Experience: Dual qualified Solicitor and Attorney
Jeremy Aldermartin and other Law Specialists are ready to help you
Customer: replied 5 months ago.
Hi Jeremy, thanks for this. My question is actually if I was to be a sole trader and self employed as apparently if you are both, you only submit one tax return? How does it work with expenses for that if my self employed job is totally different to my sole trader?
Hi thanks, ***** ***** say self employed what form is that going to take a limited company?
Customer: replied 5 months ago.
Hi Jeremy,At present I am self employed working as a freelance PA - this is my main source of income. My LTD company is totally separate, and what I use for my online clothing brand.As I explained to Jim before, I am thinking of making my LTD company dormant as I barely make any sales at present and it costs me over £100 per month for an accountant. Jim advised that a sole trader was the best route to go. This means I would be self-employed and be a sole trader but instead of filing two separate tax returns (one for LTD and one for SE) Jim said it would be only tax return for SE and sole trader.So my question is, how do you differentiate the expenses in one tax return from PA expenses and clothing expenses. If I am to only submit one tax return (sole trader and self employed together) do all the tax deductible expenses get combined? My deductible PA expenses are things like travel and a portion of my rent etc. Which aren’t too much.. But for my clothing brand, my expenses are very large, for example buying fabric and materials in bulk and the cost of manufacturing.So for example if I was to earn £30,000 in one year of PA freelancing and only £500 in one year of sales from my sole trader business but my expenses from both PA and clothing business were a total of £15,000 (mostly all from clothing production) then I can deduct £15,000 off my total tax for sole trader and my personal?I hope this makes sense.

Hi thank you for your message, I see well in that case in effect you would have one tax return showing your income and any deductible expenses from your income. Therefore, your expenses would be combined and deducted. I hope this helps, if you can please accept my answer and rate me 5 stars (in the top right of your screen) then Just Answer will credit me for helping you today.

Apologies ignore the rating I see that has been done.

Customer: replied 5 months ago.
you're saying its ok to combine two different sets of expenses in one tax return even though they are different and totally opposite? As in I can claim huge clothing manufactuing expenses off my PA income? I feel like that doesn't seem right...

Hi thank you for your message, well from what you have said, I gather that in essence what this comes down to is you currently have two different businesses in effect. You are closing down your limited company, which means you will now have two forms of income which will be subject to income tax these are your freelance work and your clothing business. It does not matter what your sources of income are you do one income tax return and therefore any allowable expenses that should be deducted from the income are submitted in one return. I hope this helps, if you can please accept my answer and rate me 5 stars (in the top right of your screen) then Just Answer will credit me for helping you today.