What are the Pros and Cons of trading through a Limited Company

Tax reasons and you can walk away from the company’s debts if your biggest customer goes bump on you.

Cons: A newly formed limited company can find it difficult to get credit (except from couriers apparently). Your annual accounts will cost a few hundred quid more to get prepared if you can’t do them yourself. That’s about it.

Posted under Courier Financial Issues, Legal Issues

Posted by Alec at 3:22 pm, July 12, 2007

7 Comments so far

  1. Alec added on  July 12th, 2007 at 19:09

    I think I worked out the benefit for this year at about £3,500, something like that anyway – mainly National Insurance.

  2. Alec added on  July 13th, 2007 at 07:10

    It depends on profit, not turnover. But you’re right, that was just a back of enevelope calculation I did to demonstrate the potential benefit to someone.

    For someone who’s the sole owner (or shareholder) of a business with a £30,000 profit the tax/NI saving from trading through a company would be £2,284.30 in 2007 – providing they extract their remuneration in the most tax-efficient way.

  3. Alec added on  July 14th, 2007 at 09:08

    Couldn’t that just be because most larger businesses (the ones that are more likely to owe lots of money) see the advantages of being limited?

    There can only be a very few companies in this business that are actually set up to defraud their suppliers. It’s mainly just bad luck or bad management. Or am I falling into my old habit of always thinking the best of people?

  4. Alec added on  July 14th, 2007 at 09:19

    jaymobFOOL wrote:
    Most limited companies hire an office as a trading address, and thats all it is.
    If I go tits up my house is a stake and so is yours as that is your trading address as far as i gather.
    No advantage there then.

    That’s incorrect. It doesn’t matter where a limited company trades from, if it goes into liquidation it can only lose its own assets. Just because your limited company trades from your home doesn’t make your home an asset of the company. And just because a sole trader doesn’t trade from home it doesn’t mean that their home is protected.

    jaymobFOOL wrote:
    Tax breaks may be a reason, but they have been cut as far as I am aware. No advantage there then.

    Again incorrect. We saved over £7000 in tax & NI last year because we’re a company. It has to be said though that it’s possible to have the same tax breaks while operating as an ‘unlimited company’.

    jaymobFOOL wrote:
    Some say it is to protect the trading name but whats to stop me trading as [details snipped]

    True, and what you trade as and what your limited company is called don’t have to be connected. Your trading name is already protected from “passing off” whether or not your business is a limited company. If it’s clear which A* C******* has been trading under that name for the longest then they could insist on the other dropping the name.

    This discussion has raised some good points and I hope opened some eyes as to how dangerous it can be giving credit to limited companies with an unproven trading history, or indeed to any limited companies. In fact I’d go further than that – MOST courier businesses are a bad credit risk; it’s not a case of ‘if’ they’ll run into trouble and dump on you, but ‘when’. Even the largest and apparently successful businesses can use liquidation as their exit strategy.

    I learnt in the most painful way possible that my idea of how business should be conducted doesn’t tally with certain ‘Businessmen’s’ ideas. As a result I’m now extremely cautious; to the extent that 90% of our business is conducted on a ‘no-credit’ basis. We’re paid in advance for most of our work, so it can be done.

  5. Alec added on  July 14th, 2007 at 10:00

    I think he was using ‘knock’ as in ‘criticise’ Mick. You ‘knocked’ him by calling him a twat.

  6. Alec added on  July 14th, 2007 at 11:01

    I’m fully aware of the long firm fraud Steve, I don’t think I’ve come across anyone in this business that’s appeared to have deliberately set out with that in mind though – there are far richer pickings in other businesses for someone with his mind set on fraud. There are people/businesses who’ve obviously gone down that route as they’ve developed financial problems but I’d be surprised if even your Merseyside acquaintance or the Essex boy SET OUT at the start to do anything wrong. That’s still no excuse though of course.

  7. Alec added on  July 14th, 2007 at 12:08

    No, as I said 5 pages ago:

    Alec wrote:
    Tax reasons and you can walk away from the company’s debts if your biggest customer goes bump on you.

    Cons: A newly formed limited company can find it difficult to get credit (except from couriers apparently). Your annual accounts will cost a few hundred quid more to get prepared if you can’t do them yourself. That’s about it.

    I think “You can fuck off and screw your debtors.” counts as a ‘Pro’ for the person setting up the company, although everyone else may view it as a ‘Con’ (in more than one sense).

    Really though that’s it, there’s not really anything much else to say.

    An established (say 5 years plus) limited company may be considered a better credit risk than a sole trader, providing they’ve got a reasonable record of profitability. There’s also an argument that prospective customers who evaluate their suppliers financial stability may prefer to deal with an established limited company with a proven track record, rather than just a bloke who says he’s been in business for 10 years.

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