Ltd V soletrader, Vat V no vat - my case

Kersh

Hello to all in what has to be 1 of the best parts of boards

Im looking for some pointers on the above dilemmas/options with regard to my own particular plans.

The plan - Online shop only, selling a range of goods. Goods will all be imported, mainly from Europe, but this may expand to beyond (Usa, Far East) for year 2. Turnover for year one will, at best guess be less than 20-40k. Only me running it.

With regard to Ltd V Sole, which route would be best? My own thoughts are that a Ltd setup "looks" a lot better, but is that enough to justify the extra work involved with setting up/filing etc. As I will be the only employee, which way is best for me in your opinion? I know extracting wages from a Ltd setup can be difficult as against Paye from Sole setup.

With regard to Vat registering, basing it on the fact that all products will be purchased in Europe for at least the 1st 12 months, what is your opinion on vat registering? Should I, or should I not? I wont be able to avail of vat exemption if I dont register, but the flipside is I will pretty much have large vat bills because there wont be a lot written off against sales (just small running costs)So its a kind of obvious, but Im just throwing it out there to fresh minds and to get some valued opinions.

In case Im missing something, is there any merit in NOT Vat registering?

Thanks in advance to replies,

Stephen.

bungler

Hi Stephen,

A Ltd company can have advantages such as if you go bust they can only come after you for €1 wheras a sole trader can be hit for everytyhing such as house etc.
But when i was deciding what to choose i was told that LTD has a lot more paper work involved etc which i wanted to aviod.

I went the sole trader route and had the option to register for VAT, i think if you are earning under €50k per year you dont have to register with VAT which meant i didnt have to worry about all the hassle every month, but i was going to earn more than 50k so i registered for VAT. VAT for me was a pain becuase i had to make sure there was money to pay it everymonth so what i did was open a second bank account and transfer the VAT i was charging companies into that so it kept me in the clear,becuase when you are starting out its a pain to try balance everything.

Hope this helps pal

Kersh

Thanks a million for sharing your experience.Anymore out there that can help guide me

kennyb3

bungler wrote: »

Hi Stephen,

A Ltd company can have advantages such as if you go bust they can only come after you for €1 wheras a sole trader can be hit for everytyhing such as house etc.
But when i was deciding what to choose i was told that LTD has a lot more paper work involved etc which i wanted to aviod.

I went the sole trader route and had the option to register for VAT, i think if you are earning under €50k per year you dont have to register with VAT which meant i didnt have to worry about all the hassle every month, but i was going to earn more than 50k so i registered for VAT. VAT for me was a pain becuase i had to make sure there was money to pay it everymonth so what i did was open a second bank account and transfer the VAT i was charging companies into that so it kept me in the clear,becuase when you are starting out its a pain to try balance everything.

Hope this helps pal

Just a few points on what you said:

1. While you have limited liability as a company, the bank will generally request personal guarantees of some form.

2. The extra paper work arguement I dont get - what extra paper work exactly? For both you need to keep up to date with Paye/prsi and vat.

A limited company is slightly more onerous to set up, but if you either a) research it yourself or b) go to an accountant and/or company formation agent they will make it very simple.

You may have to sign off a few extra sheets (letter of representation and directors loan account) but that is about it.

3. Yes, accountancy fees are more for a limited company but they shouldnt be significantly so.

The big issue I come across all the time, being in practice myself(yes i am biased but i see the same mistakes over and over), is that people tend to set up as sole traders trade away and ignore their accounts and avoid their accountants. They want to do everything as cheap as possible.

The thing is that by engaging an accountant as a sole trader at the start and taking advice is that:

a) Any accounant worth their salt, will provide either excel sheets as a template to maintain accounts or training on software. This avoids giving in messed up accounts at the end of the year. This will ultimately re-coup you the initial small bill your accountant will send you.

b) Advise you on vat, paye/prsi and press you to keep you up to date. The amount of clients who mis-calculate vat or wages in the first years trading is unreal.

c) The most important - advise you strongly to start putting money away for your tax bill. So so many sole traders ignore this and when faced with a big tax bill further down the line complain that the money is spent. Being a sole trader requires a lot of discipline in this regard.

Also the vat registration rates are here http://www.revenue.ie/en/tax/vat/registration/index.html

Hope this helps,

Brian

kennyb3

Also, just to sum up although limited liability is good it is only limited so far - you will still likely face personal guarantees and the costs of a liquidation, which for even a very small company can be expensive.

A sole trader might be more appealing because of little to no formation costs and slightly cheaper accountancy fees, howver it requires significant discipline to save for your tax bill.

fibber

kennyb3 wrote: »

Also, just to sum up although limited liability is good it is only limited so far - you will still likely face personal guarantees and the costs of a liquidation, which for even a very small company can be expensive.

A sole trader might be more appealing because of little to no formation costs and slightly cheaper accountancy fees, however it requires significant discipline to save for your tax bill.

I agree -You'll still need to be diligent RE Tax as a sole trader - Having a LTD company may force you to keep that in check
A some accountants may advise that you not to bother registering for VAT until your revenue starts to hit a point where you need to and as you are not selling to businesses, where it might be viewed as necessary, it could make sense - It still takes a careful eye on the books every month either way

Even if a LTD company doesn't work out- providing you can cover your creditors, which you will have to do as a sole trader, there may be no need for a liquidation- simply ceasing to trade can be enough.