Setting up business (in the UK)

[David Tripp]

Hi all,
I am finally in the throws of making our videography business official and want to get us registered as a proper company.

There are two of us going into this together (Friends not family) and we thought the best way to go about it is to form a partnership.

The question whether we form a Partnership (similar to a sole trader set up) or we for a Limited liability partnership.

I know that there are various benefits and cons for both, but was wondering what other people in this type of business have decided to go for.

One of the big questions from the other partner, his wife is adamnet that we set up a limited liability partnership as she doesn't want their house to be on the line if anything goes wrong.

My argument was that if we have the right insurance in place then at the end of the day if something did happen then it wouldn't ever get to this position. Also there are a lot of other people trading as soletraders who's line of work is a much higher risk than ours...window fitters, builders etc, and they would normally form a sole trader. Running as a LL company would be more applicable if were running a company that moved a lot of stock and had large in and out going's each month, where as a Videogrpahy business does not run like this.

I would be inclined not to go for the limited liability set up as I know that the costs implicated with this would be slightly more and in the first few years we wouldn't be earning much in the first place. official accounts would have to be written up for the company as well as our own tax returns on what we pay ourselves. thus eating into our profits, which are going to minimal in the first few years to say the least.

Does anyone have any experiences they could share. or decisions that they have decided to take themselves. Are most of you set up as a sole trader or limited liability. or in the case of two people being involved what have you gone for ? ordinary partnership or a limited liability partnership?

Currently our business is mainly weddings, but we also have a limited amount of corporate work we are doing which is likely to increase.

Any feedback would be greatly appreciated.

Many thanks
Dave

[George Kilroy]

I'm no expert in business start up right now but I have been self-employed in the UK since 1985: I moved into it by slow steps. But my two-pennyworth would depend on the type of work you mainly see yourselves doing. If it will be predominately weddings, family or community events, stage shows etc. then stay self-employed sole traders and under the VAT radar. If you intend to aim for full-time corporate or direct to business trading then register as a VAT registered limited liability company, many business will be less inclined to deal with you if you're not.

In either case get a partnership contract drawn up. I say that after seeing a number of business partnerships over the years; it's amazing how long-standing friendships turn when trading gets difficult or one person's life situation changes. Don't rely on insurance to get you out of catastrophic situations.

[David Tripp]

Thanks George,
yes we would in both situations have the partnership arrangement and some papers drawn up.

When you say don't rely on insurance to get you out of trouble, what context are you referring to, ie diligence, common sense etc or are you referring to something else. Would you mind explaining that.

I might have been misunderstood where I said we have insurance in place to cover us, what I meant was any fatalities etc if something were to go absolutely pair shaped like drop a camera on somebodies head.
If we were running a company which had loads of outgoings, eg large warehouse, offices and dependable on stock coming in and out then i would not be comfortable running as a soul trader and would set up a Ltd company. But for what we are doing the day to day finacial risks are not as large. Would you agree ?

Sorry I'm not great at explaining things ! Thanks for the advice.

Thanks
David

[George Kilroy]

In the context of loosing your house or personal possessions.

Trading in the commercial world is fraught with problems which you can't insure against or if you can will be very expensive such as businesses which cease trading owing you money that causes you financial problems or you contracting with a company to produce work you can't or don't produce within their contract conditions and they sue. Not necessarily regular situations you might find yourself in in but things you should consider if insurance backing is going to be your back stop position to avoid loosing your home.

But even if you will be sticking with weddings you should at least have public liability, even before insuring your kit.

[Andy Wilkinson]

David,

George is offering you very good advice in both his posts.

My advice is to book a 1 hour consultation with an Accountant so that you can both understand the implications of the various different ways one can set up a company (Partnership or Limited Company). That's what I did. Most decent Accountants will offer you a free introductory meeting anyway - and you're going to need an Accountant if you run a business.

Public Liability Insurance is an absolute must when you've got whatever set-up you decide to move forward with together. It's not expensive. Not having it could be life changing if anyone ever decides to sue you.

Good luck!

[David Tripp]

George,
I understand what you are saying.

We already have public liability insurance, there is no way I would cut on this.

Andy, that's really good advice about the accountant. I will chase that up.

thanks
Dave

[Mike Marriage]

Originally Posted by George Kilroy

If it will be predominately weddings, family or community events, stage shows etc. then stay self-employed sole traders and under the VAT radar. If you intend to aim for full-time corporate or direct to business trading then register as a VAT registered limited liability company, many business will be less inclined to deal with you if you're not.

Just to clarify, VAT registration and establishing a Ltd company are separate considerations. Many Sole Traders such as myself are VAT registered. It is also worth considering the optional Flat Rate VAT scheme if your turnover is under £150,000 ex VAT.

All the information you need to figure out what is best for you is available via HMRC, however, a skilled accountant will likely save you time and money in finding the best solution for your business.

[Peter Riding]

There is a ton of impartial free advice available online. Start with the governnments Business Link resource. Then there are training days you can attend and consultants you can meet often for free or at low cost.

The limited liability company route is more expensive to set up and more onerous for record keeping but the tax bill can be a lot lower. It does need an accounant familiar with your own particular circumstances to advise on when is the best time to go that route from a purely financial perspective. If your partners wife has no involvement in the business -and I mean none - her share of their house is unlikely to be at risk.

While you are protected by limited lability it may not work in practice. For example if you hit a rough patch and continued trading whilst technically you were insolvent you would be breaking the law. Again insurance may not pay out if the insurer does their usual trick and points to some obscure clause that reduces or eliminates their liability.

Pete

[David Tripp]

Thanks everyone for the advice.

Just another question, what type of business are most of you set up as Ltd or Soletrader. Have you changed yourselves over the years as you've expanded ? If so at what point did you decide to change ?

thanks
David

[Chris Harding]

Hi David

A simple partnership will probably be the best..I run under a family partnership so my accountant can juggle funds between my wife's tax return, mine and the partnership to achieve the best result.

Since you are unlikely to have huge creditors (well, you certainly shouldn't) a limited liability company would be mostly not required. You are not buying and selling huges amounts of stock, but simply providing a service so cash flow should be good!

Chris

[Nigel Barker]

In the UK there are tax advantages to being a limited company if you earn a lot of money as you can take your profits as a share dividend which is taxed at a lower rate than the highest rate of Income Tax. There are also various other ways of using a limited company to avoid/evade tax e.g. a director taking out a loan from the company at minimal interest that never gets repaid The top tricks British celebrities use to pay less tax | This is Money

[Paul R Johnson]

There are advantages and disadvantages, and only an accountant can advise properly. For instance, if there are two of you as directors of a Ltd company, then whatever you pay yourself will need class 1 National insurance contributions, and even if you pay yourselves a very low salary, you could find you having to pay your own NI, but then the company having to pay employers NI on yourselves too! Accountancy will be more expensive, and a partnership can provide more available money kept and not given to HMRC - as partners will pay class 2 NI (quite cheap) and then NI class 4's on your profits only.

The VAT issue for registration below the threshold is also the accountants call, and depends on how much business you do with unregistered individuals, as above BUT also how much you intend spending. Buy a video camera, lights, sound kit etc and 20% can be recovered. Your invoices, however, will all be 20% more expensive. Most of my clients are VAT registered, so for me, sole trader and VAT reg work well.

Most proper chartered accountants will give you the first meeting for free, and mine guaranteed saving me more than he charged. He has for years always done this. Looking at my tax return when he completes it I would have no idea how to have put in those things.

[David Tripp]

Thanks for the tips guys.

We recently had a meeting with an accountant that a close friend of mine recommended which he already uses for his business.

We laid it all out to him and there were a number of options which he said we could go for. As there were two of us and with the low amounts we will probably be earning in the start up stages then to maybe best stay away from a ltd company for the moment. He implied that it was easier to work up to it than to form it then find out that it isn't right and have to close the company.

He said that they didn't recommend a simple partnership to anyone now except for family members as he has seen even the best partnerships end in really bad circumstances.

So instead he suggested that the best thing to do between us would be to set up 2 sole traders for each of us and just split the takings and costs between the two of us. One can act as the front man and take the invoices and then the other can invoice for his share of the takings. This way the liability for each partner is our own responsibility.

we both felt this was acceptable.

We will visit a few more accountants just to make sure. but it seems that this maybe the best way to go.

Thanks
David