Author Topic: Sole Trader or Limited Company (Read 6673 times)

Richard Johnson · « **on:** February 07, 2021, 17:19 »

Hi,
I was wondering what people in similar situation to myself do in terms of declaring tax if they are doing this as a second job to their main job which you pay 40% tax on your salary.
Whether you just do an online self assessment as a sole trader or have set up a limited company and pay an accountant to do your return and only pay the 19% tax?
From what I have read online a limited company involves a bit of paperwork only an accountant can do which you would have to pay for but on the flip side you only pay 19% tax as opposed to a sole trader I would have to pay 40% due to my main income salary of my main job (loosing 40% of such a small side income would be very painful!). Thanks, appreciate any replies.

Sean Locke Photography · « **Reply #1 on:** February 07, 2021, 18:19 »

What country?

fotoVoyager · « **Reply #2 on:** February 07, 2021, 18:24 »

I'm in the UK - sole trader.

There's a lot more costs involved with Ltd. Co., you'd have to be making a fair amount to make it worthwhile. I think the idea that somehow you pay less tax is slightly confusing too - you just pay it at different times and different ways that are advantageous to real companies, but not necessarily to an individual any more.

As always, talk to a professional.

Justanotherphotographer · « **Reply #3 on:** February 08, 2021, 04:56 »

Sole trader too. I had a meeting with an accountant with regards to setting up as a Ltd company several years ago. They said I could basically save a few thousands pounds a year after their fees. In the end I wasn't comfortable with the idea of avoiding the tax. They seemed to be pushing lots of other ways to "maximise tax efficiency" too. I believe in paying my way.

Pro tip, if you are in the UK you wont need to get VAT registered once you are clearing the threshold because royalties count as being earned in the country where the buyer is (unless you sell from your site in which case everyone needs to be VAT registered now). Saves on some paperwork.

fotoVoyager · « **Reply #4 on:** February 08, 2021, 08:49 »

Quote from: Justanotherphotographer on February 08, 2021, 04:56

In the end I wasn't comfortable with the idea of avoiding the tax. They seemed to be pushing lots of other ways to "maximise tax efficiency" too. I believe in paying my way.

That's what put me off too. I've spent enough time in poor and corrupt places to realise it's a privilege to pay tax and have it ploughed back into society.

uvox4 · « **Reply #5 on:** February 08, 2021, 09:27 »

I am a sole trader.

It depends how much money you make and the risk. As a sole trader you are totally liable. Limited Company directors seem to take less pay and get paid a dividend on top to avoid tax but have added bureaucracy and costs.

I am happy to do my tax return and sole trader suits my circumstances. I would not take a single persons advice from this site but speak to a professional ...an accountant. HMRC had some helpful information.

One thing I would suggest, is to make sure you have public liability insurance. Its not expensive

uvox4 · « **Reply #6 on:** February 08, 2021, 09:41 »

You say you would have to pay 40% on the income. Don't forget that you can offset you expenses like travel, lighting, heating, software, camera equipment capital costs ..... If you have recently started then your costs will be more than your stock income. In this case you can offset this against your tax from your main job and possible get a tax rebate.

Don't look at this as a some sort of scam. This is what the HRMC legally allow you to do. Don't forget, when you buy a new camera you have already paid the government tax..ie VAT etc.

I have to admit I found the claiming expenses strange at first coming from a PAYE job before, and I was amazed what you can legally claim for.

ShadySue · « **Reply #7 on:** February 08, 2021, 09:45 »

Quote from: rcj1uk on February 07, 2021, 17:19

Hi,
I was wondering what people in similar situation to myself do in terms of declaring tax if they are doing this as a second job to their main job which you pay 40% tax on your salary.
Whether you just do an online self assessment as a sole trader or have set up a limited company and pay an accountant to do your return and only pay the 19% tax?
From what I have read online a limited company involves a bit of paperwork only an accountant can do which you would have to pay for but on the flip side you only pay 19% tax as opposed to a sole trader I would have to pay 40% due to my main income salary of my main job (loosing 40% of such a small side income would be very painful!). Thanks, appreciate any replies.

Really, as fotoVoyager says, it's best to consult an accountant. (I'm in Scotland too)

The rules and the tax forms seem to change incredibly often.
I was going to tell you the situation as I understand it, but probably it has changed since I understood it (I use an accountant).
I *think* if you earn less than £1000 between self-employed earnings and savings interest, you don't need to pay any more income tax.
If you earn less than a certain (?) amount from your self-employment you don't need to pay extra NI, but you need to fill in a form to declare that, or they'll come chasing you. They lost my first declaration, or it was lost in post, and got threatening letter. I sent the next one registered post and I got a summons to attend court and a receipt for my declaration inside 24 hours!

But honestly, an accountant is the best bet. For example what's allowable and not allowable in the UK as expenses, compared to e.g. the US, can be different, so what you read here doesn't necessarily apply. Also with the last three iterations of the self-employed tax form, I can't get my head round where the accountant has put the various expenses - it's not what I would have guessed $:-\$ . There are classes (maybe moved online?) which can help, but really, an accountant won't cost you that much and it's worth it for peace of mind.

Justanotherphotographer · « **Reply #8 on:** February 08, 2021, 10:17 »

Quote from: uvox4 on February 08, 2021, 09:41

You say you would have to pay 40% on the income. Don't forget that you can offset you expenses like travel, lighting, heating, software, camera equipment capital costs ..... If you have recently started then your costs will be more than your stock income. In this case you can offset this against your tax from your main job and possible get a tax rebate.

Don't look at this as a some sort of scam. This is what the HRMC legally allow you to do. Don't forget, when you buy a new camera you have already paid the government tax..ie VAT etc.

I have to admit I found the claiming expenses strange at first coming from a PAYE job before, and I was amazed what you can legally claim for.

Of course he should be claiming expenses whether he's a sole trader or limited company!

I'm not talking about that, I'm talking about structuring the company in a certain way solely to minimise tax. For example I am also entitled to citizenship in a country where corporation tax is 5% but live in the UK. There are very legal ways I could set up a company in that country and pay a tiny fraction of what I do now, but I take advantage of the benefits afforded by the tax payers of the UK so it would be outrageous to do it.

My experience talking to accountants is that their industry consists of campaigning to make tax laws as complex as possible then getting paid to use the resulting loopholes to avoid tax. I recommend reading Private Eye for a look into how much evil s**t the big accountancy firms constantly get up to.

100% you need to speak to an accountant to see what your options are and make sure you are acting correctly, but bear in mind there will still be a moral choice at the end of it.

Take a look at how many contactors took advantage of loan charge schemes recommend by their accountants to avoid taxes. They all knew what they were doing. This loophole is getting closed now but accountants will just be on to the next one (also take a look at who’s getting hung out to dry now the schemes have hit the press; it’s not the accountants).

Uncle Pete · « **Reply #9 on:** February 08, 2021, 11:57 »

Quote from: Justanotherphotographer on February 08, 2021, 10:17

Quote from: uvox4 on February 08, 2021, 09:41
You say you would have to pay 40% on the income. Don't forget that you can offset you expenses like travel, lighting, heating, software, camera equipment capital costs ..... If you have recently started then your costs will be more than your stock income. In this case you can offset this against your tax from your main job and possible get a tax rebate.

Don't look at this as a some sort of scam. This is what the HRMC legally allow you to do. Don't forget, when you buy a new camera you have already paid the government tax..ie VAT etc.

I have to admit I found the claiming expenses strange at first coming from a PAYE job before, and I was amazed what you can legally claim for.

Of course he should be claiming expenses whether he's a sole trader or limited company!

I'm not talking about that, I'm talking about structuring the company in a certain way solely to minimise tax. For example I am also entitled to citizenship in a country where corporation tax is 5% but live in the UK. There are very legal ways I could set up a company in that country and pay a tiny fraction of what I do now, but I take advantage of the benefits afforded by the tax payers of the UK so it would be outrageous to do it.

My experience talking to accountants is that their industry consists of campaigning to make tax laws as complex as possible then getting paid to use the resulting loopholes to avoid tax. I recommend reading Private Eye for a look into how much evil s**t the big accountancy firms constantly get up to.

100% you need to speak to an accountant to see what your options are and make sure you are acting correctly, but bear in mind there will still be a moral choice at the end of it.

Take a look at how many contactors took advantage of loan charge schemes recommend by their accountants to avoid taxes. They all knew what they were doing. This loophole is getting closed now but accountants will just be on to the next one (also take a look at who’s getting hung out to dry now the schemes have hit the press; it’s not the accountants).

Accountants don't write the laws, your elected officials do that. Hiring an accountant means hiring someone who's trained and knows those laws and takes advantage for your benefit, to save money and pay lower taxes. Taking advantage of laws in your favor is legal and what you should do, when you can. There's no moral choice in that, it's the law.

Remember you can get a bunch of people with phones and have them shoot the job instead of hiring a professional trained photographer? And the results will match with the level of skill and training.

Same for accountants, and they go to school, to be professionals, to earn a living.

Justanotherphotographer · « **Reply #10 on:** February 08, 2021, 12:28 »

Quote from: Uncle Pete on February 08, 2021, 11:57

Accountants don't write the laws, your elected officials do that. Hiring an accountant means hiring someone who's trained and knows those laws and takes advantage for your benefit, to save money and pay lower taxes. Taking advantage of laws in your favor is legal and what you should do, when you can. There's no moral choice in that, it's the law.

Remember you can get a bunch of people with phones and have them shoot the job instead of hiring a professional trained photographer? And the results will match with the level of skill and training. Same for accountants, and they go to school, to be professionals, to earn a living.

Accountants very literally do write the tax laws, via strong lobby groups and actually being in the teams that actually draft the laws.

As far as the moral side of it, there is an endless amount of behaviour I could partake in that is completely within the law and utterly immoral (some of which would benefit me no end as an individual). We can all think of examples, some which are mundane and everyday and some bigger (obvious) historical examples.

If someone's stance is “I can legally do it and it benefits me, therefore I should do it” I can’t really argue with that without getting very quickly (and pointlessly) off track.

OP needs to speak to an accountant and make an informed decision.

Uncle Pete · « **Reply #11 on:** February 08, 2021, 12:42 »

Quote from: Justanotherphotographer on February 08, 2021, 12:28

Quote from: Uncle Pete on February 08, 2021, 11:57

Accountants don't write the laws, your elected officials do that. Hiring an accountant means hiring someone who's trained and knows those laws and takes advantage for your benefit, to save money and pay lower taxes. Taking advantage of laws in your favor is legal and what you should do, when you can. There's no moral choice in that, it's the law.

Remember you can get a bunch of people with phones and have them shoot the job instead of hiring a professional trained photographer? And the results will match with the level of skill and training. Same for accountants, and they go to school, to be professionals, to earn a living.

Accountants very literally do write the tax laws, via strong lobby groups and actually being in the teams that actually draft the laws.

As far as the moral side of it, there is an endless amount of behaviour I could partake in that is completely within the law and utterly immoral (some of which would benefit me no end as an individual). We can all think of examples, some which are mundane and everyday and some bigger (obvious) historical examples.

If someone's stance is “I can legally do it and it benefits me, therefore I should do it” I can’t really argue with that without getting very quickly (and pointlessly) off track.

OP needs to speak to an accountant and make an informed decision.

Right to the bold part.

Accountants lobby for complicated tax laws? Oh I didn't know the men in black was the accountants lobby group behind some conspiracy to make taxes more difficult to understand.

I still blame the people who write the laws. If they are taking bribes or being manipulated, that's their fault. Talk about moral responsibility. Don't blame the lobbyists blame the people who take the bribes or fall to pressure to do what the lobby asks for, instead of what's best for us.

The Congress takes steps known as the legislative process to pass a Federal law. This process begins when a Senator or Representative prepares a proposed law, called a "bill." It ends when Congress approves the bill and sends it to the President. When the President signs the bill, it then becomes law.

The Constitution says that "all bills for raising revenue shall originate in the House of Representatives" and that "Congress shall have the power to lay and collect taxes." Presidents can, and frequently do, recommend changes to current tax laws, but only Congress can make the changes.

No it's not underhanded or sketchy or slimy or any of the other things you might suggest for anyone to pay the least that they legally owe. It is not immoral to only pay what you owe in taxes. It's the law and we have a duty to ourselves to pay the proper amount of taxes that we owe. Calculating according to the laws is not immoral. Taking every legal deduction or planning for better tax benefits is not wrong.

If you like paying higher taxes and donating more of your income, you should just play the lottery. It's a voluntary tax for people who are bad at math.

Justanotherphotographer · « **Reply #12 on:** February 08, 2021, 12:47 »

...this is about the UK?

ShadySue · « **Reply #13 on:** February 08, 2021, 12:50 »

Quote from: Justanotherphotographer on February 08, 2021, 12:47

...this is about the UK?

Yes, Scotland is still in the UK.

Justanotherphotographer · « **Reply #14 on:** February 08, 2021, 12:52 »

Quote from: ShadySue on February 08, 2021, 12:50

Quote from: Justanotherphotographer on February 08, 2021, 12:47
...this is about the UK?
Yes, Scotland is still in the UK.

Sorry, I know, I was replying to the post above me.

ShadySue · « **Reply #15 on:** February 08, 2021, 13:00 »

Quote from: Justanotherphotographer on February 08, 2021, 12:52

Quote from: ShadySue on February 08, 2021, 12:50
Quote from: Justanotherphotographer on February 08, 2021, 12:47
...this is about the UK?
Yes, Scotland is still in the UK.
Sorry, I know, I was replying to the post above me.

Sorry, Uncle Pete is based in the US, and I guess he's writing about that country.

Uncle Pete · « **Reply #16 on:** February 08, 2021, 13:09 »

Quote from: ShadySue on February 08, 2021, 13:00

Quote from: Justanotherphotographer on February 08, 2021, 12:52
Quote from: ShadySue on February 08, 2021, 12:50
Quote from: Justanotherphotographer on February 08, 2021, 12:47
...this is about the UK?
Yes, Scotland is still in the UK.
Sorry, I know, I was replying to the post above me.
Sorry, Uncle Pete is based in the US, and I guess he's writing about that country.

You don't have a national lottery in the UK?

Yes I am in the US but that doesn't change morality or the laws. Our system is based on the English system.

"there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible" Judge Learned Hand - United States Court of Appeals for the Second Circuit 1947 I'll side with his opinion.

But still the answer is the same as every time these discussions come up. Seek professional advise for the best way to deal with taxes, no matter where you live. This is a stock photo forum.

ShadySue · « **Reply #17 on:** February 08, 2021, 13:50 »

OT

Quote from: Uncle Pete on February 08, 2021, 13:09

Yes I am in the US but that doesn't change morality or the laws. Our system is based on the English system.

Ha, Scots Law is NOT based on the English system, but has been influenced by it, and EU law, in some aspects.
We share income tax laws with England, but we can set our own rates, which are currently 1% lower for lower incomes and 1% more for higher incomes.
Oh, I think the OP must be outwith Scotland, as he mentioned 40%, which isn't a Scottish tax rate.

YadaYadaYada · « **Reply #18 on:** February 08, 2021, 15:23 »

Quote from: ShadySue on February 08, 2021, 13:50

OT
Quote from: Uncle Pete on February 08, 2021, 13:09
Yes I am in the US but that doesn't change morality or the laws. Our system is based on the English system.
Ha, Scots Law is NOT based on the English system, but has been influenced by it, and EU law, in some aspects.
We share income tax laws with England, but we can set our own rates, which are currently 1% lower for lower incomes and 1% more for higher incomes.
Oh, I think the OP must be outwith Scotland, as he mentioned 40%, which isn't a Scottish tax rate.

All is not the same taxes or government. In Canada we pay according to this
Tax Rate
15%     on the first $49,020     $49,020
20.5%     on the next $49,020     $49,021 up to $98,040
26%     on the next $53,939     $98,041 up to $151,978
29%     on the next $64,533     $151,979 up to $216,511
33%     on the portion over $216,511     $216,512 and up

Federal Parliament deals mainly with issues that concern Canada as a whole, makes laws, Australia and the United States also have federal systems. The UK has a unitary system. Accountants and lobbies don't make the tax laws in any of these.

ShadySue · « **Reply #19 on:** February 08, 2021, 15:42 »

Quote from: YadaYadaYada on February 08, 2021, 15:23

The UK has a unitary system.

Of what?
Laws? No, Scotland and NI have their own legal systems, different from 'England and Wales'.
Taxes? No, Scotland can, and does, set its own rates and bands for tax; Wales can set its own bands and rates, but currently keeps them the same as England; NI has the same rates and bands, not sure if they can vary them)

Richard Johnson · « **Reply #20 on:** February 08, 2021, 16:07 »

Hey,
Thanks for all the replies, it seemed to have snowballed! Sorry I should of said I am in the UK (Scotland), so yes pay 41% tax on my main job income.

I believe sole trader is the way to go for my circumstance, I didn't realise the cost of a limited company.

Easy for me to say as I have never done it but after watching a YouTube video on how to fill out a UK self assessment tax form it appears quick and easy.

Next tax year I estimate earnings of £4.5k to £5k from stock photography (can't believe I have gone from. a fine art photographer to someone who takes photos of road signs!) and as most of my work is done from driving about all weekend I plan to offset the taxable earnings by around half with car expenses (using the set rate of 45p / mile), broadband contract monthly fee and mobile phone monthly fee.

Anyway after my 3rd year my earnings shot up so now is the time to start doing the right thing. If anyway else does this as a second job from their main job, I assume after your self assessment you can just pay it off in one go and it has no affect on your main income PAYE tax code and it is kept separate all together?

cascoly · « **Reply #21 on:** February 09, 2021, 18:26 »

Quote from: Justanotherphotographer on February 08, 2021, 12:28

...
As far as the moral side of it, there is an endless amount of behaviour I could partake in that is completely within the law and utterly immoral (some of which would benefit me no end as an individual). We can all think of examples, some which are mundane and everyday and some bigger (obvious) historical examples.

If someone's stance is “I can legally do it and it benefits me, therefore I should do it” I can’t really argue with that without getting very quickly (and pointlessly) off track....

agreed - the point is not whether it's legal or 'right/wrong' but whether it offends one's PERSONAL ethics. it may even go as far as conscientious objection or civil disobedience to laws one disagrees with on moral grounds

cascoly · « **Reply #22 on:** February 09, 2021, 18:33 »

yet another consideration is whether to take deductions that are legal but may be difficult to prove / more likely to be audited. eg in the US, home office deductions are 'known' to be suspect (and usually only amount to about 10% of home expenses). similarly for phone & travel & internet expense where there's a mix of personal & business. ymmv

much depends on how much risk one is comfortable with, and a guess of what the chances of an audit are. otoh, when running for office with dodgy business dealings, you can refuse to disclose your returns because you're being audited!

Uncle Pete · « **Reply #23 on:** February 10, 2021, 10:47 »

Quote from: cascoly on February 09, 2021, 18:33

yet another consideration is whether to take deductions that are legal but may be difficult to prove / more likely to be audited. eg in the US, home office deductions are 'known' to be suspect (and usually only amount to about 10% of home expenses). similarly for phone & travel & internet expense where there's a mix of personal & business. ymmv

much depends on how much risk one is comfortable with, and a guess of what the chances of an audit are. otoh, when running for office with dodgy business dealings, you can refuse to disclose your returns because you're being audited!

Home Office Deduction = Invitation to and audit. Difficult to prove deductions should be recorded, stored and kept but not claimed, in case of an audit. In both of those, good detailed records and documentation are key. I don't claim anything marginal, and don't claim my home office. I consider that padding in case I get audited again.

Since we're talking stock photos and people here are attempting to earn money, there is income and expense. I depreciate equipment, claim only trips that are 100% photo. (mileage logs, expenses, motel, not food. Only related expenses during that event) The rest I might record but, don't push that. If I buy a memory card or batteries, save the receipt. This isn't difficult.

I report every cent I make as well. If someone was cheating, and under reporting, then taking all kinds of edgy deductions, that's wrong. But if someone is 100% honest, reports everything on both sides, there's no moral issue, or ethics about paying exactly what's due.

Besides the end to every one of these questions and discussions is the same. Ask a professional.

I pay an account for a reason. She knows the laws and how to figure out my taxes. She answers questions like what can I deduct and what doesn't matter. She gets a bag full of folders and receipts and I get my taxes done by someone smart and competent. (not a salesman and photographer)

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Author Topic: Sole Trader or Limited Company (Read 6673 times)

Richard Johnson

Sean Locke Photography

fotoVoyager

Justanotherphotographer

fotoVoyager

uvox4

uvox4

ShadySue

Justanotherphotographer

Uncle Pete

Justanotherphotographer

Uncle Pete

Justanotherphotographer

ShadySue

Justanotherphotographer

ShadySue

Uncle Pete

ShadySue

YadaYadaYada

ShadySue

Richard Johnson

cascoly

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Uncle Pete

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