Sole trader vs Limited Company - what is best for a graphic designer (especially given the current climate and IR35)?
I am a graphic designer currently set up as a limited company. I am considering setting myself up as just a sole trader, but I am worried this may get me less work and close some doors. Does anyone have any advice they could give me around this? Much appreciated!
Replies15
- I'm a bit late to the party, but having had a client cut shifts on the basis of IR35 recently I thought I'd better look into it and found this link helpful. https://www.freelanceuk.com/news/16609-everything-freelancers-need-know-about-ir35-were-afraid-ask.shtmlFrom what I can make out, according to this sole traders won't be affected but ltd companies will? I've been a sole trader for past 13 years and not found it a barrier to finding work particulatly, that said I tend to manage my own clients rather than go through agencies.
- @Angela Gigica Thanks for this! This is why I also went as a limited company, and I actually wanted to be a sole trader from the beginning, but found that I couldn't be on any recruiters books without being a ltd company or going through an umbrella company. I'm not wondering how much work I am even going to get through recruiters now... It seems more difficult than it was last year, and I am getting more project work through my own contacts right now, but they don't pay enough month on month. I want to grab bigger projects but more off my own back than through recruiters.
- @Alister Shapley Thanks for this! I guess I am thinking of going the sole trader route as I'm not making near enough to reach the £80k+ mark with my business, so it feels like it makes sense to go sole trader, especially with it being more cost effective, but I don't want to close doors to more potential work. Particularily that I don't have big enough of a client base as yet.The reason I'm also thinking this is because I am splitting a bit of my time with part-time work at a gym now (just 18hrs a week, covid related) and quite enjoy the change to my weeks, but means I won't really be managing to take on big weeks/months blocks of work through recruitment agencies if I carry on with it, nor do I think I want to take this type of work because of wanting to make sure I sit outside of IR35. This also makes me think if I don't want to do this, then being a sole trader will be fine because of working on a project basis. However, again, I still wonder what agencies think in regards to a designer being a sole trader, and when I want to aim for bigger clients to get bigger budget work, and as well as this, I still want to be able to take smaller projects from recuiters where I am able to manage my time, because my own client base isn't extensive enough yet. I wouldn't want to change my business to going sole trader, then find I need to incorporate into a ltd company again.I guess to summarise my thoughts, if I want to split my time with another job without being able to focus all my time on freelance design, I should go sole trader (afraid of missing out on work), if I want to knuckle down and focus all my time on design, then stay limited company. If I do go sole trader though I could use an Umbrella company for particular work that requires me to be a ltd company? I am almost thinking I may stay a ltd company to keep things as they are for ease, especially with potential access to more work, and the extra protection you mention too.I guess you are finding work fine as a sole trader then? Did you already have all your clients before becoming a sole trader or did you swap after you were established?I hope my brain dump makes sense... thank you again for your help.
- As Angela Gigica mentioned you could also use an Umbrella Company. I did that for a while and then set up my ltd.
- @Jamie Crawford Hey Jamie, thanks for this. Yeh I am afraid of closing doors and Im not sure Im established enough with a big enough client base to go sole trader in this case
- @Anna Dora L. Thanks for the advice!
- @Kris Barratt thank you!
- @Alister Shapley oh great, yeah that is correct from that perspective you are more protected. I forgot about that aspect. Thanks for clarifying.
- @Angela Gigica Sorry I wasn't very clear with that statement of "more protected". I agree that there's no difference when it comes to late fees, contracts etc I was more referring to that if you're a Director of a Limited company you're not personally liable for company debt unless you've given the company a personal guarantee. So if your company goes into liquidation or gets sued your personal wealth is protected. Whereas if you're sole trade then your business and personal assets are more tied in. That's what I understood anyway when looking into it, again I might be wrong and please feel free to correct me.
- I set myself up as a ltd because a lot of recruiters & agencies wouldn't deal with sole traders unless they were part of an umbrella company. At the time (7 years ago) it seemed like the ltd was the way for me. I didn't want to go down the umbrella company path for the same reasons people mentioned below.I see some people here are working both as ltd a and sole trader in parallel, I had no idea you can do that. There was also a perception that as a ltd company you'd look more established to potential clients etc.I will disagree with what @Alister Shapley says about being more protected as ltd company. In my experience when a client doesn't pay, or messes you about, you have access to the exact same legal tools as a sole trader (ie the late payment legislation). It's always good to have a contract in place (being either a ltd or a sole trader) spelling out kill fees, statement of work, cancellations, payment terms, interest on late payments etc.Perhaps chat with your accountant as well, they see these things clearer. Also chat with your current clients and see if they have a problem being invoiced by a sole trader rather than ltd.
- @Alister Shapley that's exactly my understanding too. I have set up a Ltd because I use a combination of clients from recruiters and my own clients. Bit more of a pain on tax paperwork but I sleep better knowing I am covered.
- I swing back and forth on this question all the time. At the moment I'm sticking to the sole trader route as it's simplier, more cost effective at the moment and I don't have to worry about IR35 due to the way in which my services are provided. I've been thinking of going down the recuiter route at points which makes going limited more appealing as then I can by pass the umbrella company payment. Also @Anna Dora L. makes a very good point that if you're aiming at the larger clients then being a limited company helps, it also protects you a little in case things go wrong.In terms of IR35 I don't think (I may well be very wrong but this is my understanding of it) being a sole trade or limited has an impact on if you fall under than label. From my understanding (and please correct me if I'm wrong) the IR35 refers to being hired to do set times a day using a clients software and hardware in their office; so basically becoming an empolyee but without the security of being an empolyee.It really does depend on who your clients are and how you work. I agree with @Jamie Crawford that if you have your own client base and are doing project by project based work then sole trade is fine but I'd certainly look into going limited if you're earning £80,000+ a year (as VAT is a pain so having a limited company tax set up makes things a little easier), you're going through recuitment agencies or you're selling your services to larger companies. I hope that helps and if I've got things a little wrong please let me know.
- I used to be a sole trader but found that recruitment companies wouldn't place me for jobs so had to set up as a limited company. So that's worth keeping in mind if you are planning on going through recruiters but if you already have your own client base then I sole trader would work fine.
- Hi Michele,The IR35 doesn't mean the same thing anymore as working culture changed because of the obvious. Still no one really knows what will be the final outcome of it and if they will postpone again. I still hardly recommend setting up your company you will definiteky loose gigs if you don't. They bigger the client the more important for them that you have a company.
- I'd do sole trader personally. I set up a limited company a few years ago for the same reason and it is a bit more hassle than it's worth.
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