IT consulting - Sole trader or Ltd?
robmorgan started this topic @ 10:25 on 06/08/2004
Hi all,
I've just left my full-time role as a software engineer, with the intention of starting my own IT consulting business.
As it happens, the company I've parted from has become my first client - I'm currently working for them on a freelance basis, mostly from home, charging an hourly rate.
Though I don't forsee this being a long-term arrangement, it's ideal as it'll keep me in pennies for the next few months while I try and land another project or two.
What I'm not all to clear on is the tax situation. I actually also run a small web-based business, and am thus registered as a sole-trader with the inland revenue.
Would it be possible to roll my consulting business into that? Or should I be thinking about setting up a limited company and the (I gather dreaded) IR35?
Any pointers would be much appreciated.
Thanks,
Rob
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RE: IT consulting - Sole trader or Ltd?
jxm28788 | 06/08/2004 11:02 AM
yuo might want to try www.shout99.com and www.pcg.org.uk which are the main IT contractor websites. They have 'ask the expert' and forums as well as plenty of articles about ir35, section 660 etc.
Also ltd or sole trader makes no difference to ir35 (as I understand it), and there are other deciding factors (many companies will only deal with ltd companies)
If you run a web business AND offer IT consulting you can argue that ir35 does not apply, especially if you consult to a number of companies (as opposed to consulting to one company full time for a number of months). Also working from home is a 'pointer' against IR35.
RE: IT consulting - Sole trader or Ltd?
robmorgan | 06/08/2004 11:30 AM
Thanks, hadn't come across those sites, I'll take a look.
So, it sounds like, providing you're involved in more than one concurrent business activity, IR35 should not apply?
RE: IT consulting - Sole trader or Ltd?
James Smith | 06/08/2004 11:58 AM
Rob,
Re IR35 this is a complex area, but if you have lots of different projects it is less likely to apply. That doesn’t mean that it doesn’t apply just because you have your web business or a second contract.
IR35 does only apply to working via a limited company, if you are working as a sole trader the issue is the same (employment vs self employment) but this doesn’t come under IR35 provisioning and the implications are slightly different in that it is your employer not you who will get stung for the majority of the extra tax.
In answer to the initial query you can be a sole trader for both activities but you need to keep separate records. Similarly you could incorporate both activities and take the tax breaks from running a limited company.
If you would like to have a chat about your options, I dont mind taking a call to discuss. This is a complex area.
Regards,
------------------------
James Smith
Chartered Accountant
www.jamesesmith.co.uk
---------------------------
Your indispensable guide to Small Business Bookkeeping, Self-Assessment & VAT
RE: IT consulting - Sole trader or Ltd?
jxm28788 | 09/08/2004 07:48 AM
"if you are working as a sole trader the issue is the same (employment vs self employment) but this doesn’t come under IR35 provisioning and the implications are slightly different in that it is your employer not you who will get stung for the majority of the extra tax."
hence many companies will not hire you as a contractor unless you are a ltd company...