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Should I form a limited company?
Thread poster: Ewan Macdonald

Ewan Macdonald  Identity Verified
United Kingdom
Local time: 18:52
Member (2012)
Chinese to English
Sep 27, 2012

I am resident in the UK and am currently operating as a sole trader. I am considering becoming a limited company.
The first question is, is this legal?
I work for several different agencies, all of whom have other translators on their books.
The company would just consist of me.

The second question is, is it ethical?
If my tax bill is reduced, does this count as aggressive tax avoidance? Is it a normal thing for single translators to do?

The third question is, would there be any benefit?

Thanks in advance for all your replies. I can provide more details if necessary.

Best,

Ewan


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Tom in London
United Kingdom
Local time: 18:52
Member (2008)
Italian to English
Ask an accountant Sep 28, 2012

Hi Ewan

Yes, it's legal and ethical since (unlike a large number of famous BBC television personalities) you really are self-employed and work for a large number of different clients. Tax avoidance isn't an issue since you wouldn't be able to avoid paying the tax due.

However as a translator like yourself, I have decided not to go down this route, since translators have very few business expenses and the extra admin costs involved in doing VAT returns etc. would (at least in my case) outweigh any advantages of being a limited company.

HOwever maybe you should discuss your options with an accountant. If you don't know one, ask me in private. Maybe I could suggest one.

[Edited at 2012-09-28 09:44 GMT]


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Sheila Wilson  Identity Verified
Spain
Local time: 18:52
Member (2007)
English
+ ...
Your third question Sep 28, 2012

Ewan Macdonald wrote:
The third question is, would there be any benefit?

I would have thought you'd have more tax to pay rather than less, and you'd have to pay accountants to manage them, but I don't have any first-hand experience. I thought the main advantages of a limited company were the ability to get full tax relief in following years if you show negative profit one year (I don't think I phrased that very well, tax matters always make me dizzy) and that rather comforting feeling of being able to declare yourself bankrupt and walk away from crippling debts.

As Tom says, translators have very few unavoidable expenses: if we aren't getting much work we can cut down on buying books, software etc., we can even let our ProZ.com membership lapse, so I can't really see anything in terms of advantages on a day-to-day basis. Of course, one big advantage is that your home etc is never at risk of being seized if you're sued for professional misconduct. But (touching wood) that's a very, very rare event.

What do you see as the advantages, Ewan?


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Charlie Bavington  Identity Verified
Local time: 18:52
French to English
Answers Sep 28, 2012

Ewan Macdonald wrote:

The first question is, is this legal?

Absolutely

The second question is, is it ethical?
If my tax bill is reduced, does this count as aggressive tax avoidance? Is it a normal thing for single translators to do?

I don't think it is particularly aggressive avoidance (Note to Tom: avoidance not evasion); it has been an established practice in many sectors for donkeys' years (IT contracting, for instance).
However, as someone who likes to see himself as fairly ethical, I asked myself the same question, since clearly there is no business imperative to trade as a limited company (although some clients find it more reassuring, and obviously if you have expansion in mind, it is a first step) and so undeniably the main benefits to the likes of us (so to speak) are reduced overall tax liability (overall in the sense that company + personal income tax < inc tax alone under s/e, and overall including NI as a tax for the purposes of this comparison).

FWIW there is no obligation to register for VAT - that depends on turnover, not legal structure.

The third question is, would there be any benefit?


Depends on your turnover and personal circs. Under 25k - probably not. Over 40k, quite possibly.
I blogged about it earlier this year, including some of the maths behind it
http://cbavington.com/blog/2012/04/10/start-me-company-up/


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Ewan Macdonald  Identity Verified
United Kingdom
Local time: 18:52
Member (2012)
Chinese to English
TOPIC STARTER
Thanks Sep 28, 2012

@Sheila- I think the main attraction is a possible reduction in tax payable.
@Charlie-Thanks for the link to that blog post! It really summed a lot of the issues up and explained them in a easily understood way.
@Tom- I do know an accountant, so I'll ask them for some more advice, but since I'm just starting a PhD I'll have to cut back my hours and so maybe the sums won't add up by that point.


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Tomás Cano Binder, BA, CT  Identity Verified
Spain
Local time: 19:52
Member (2005)
English to Spanish
+ ...
My two cents Sep 29, 2012

Ewan Macdonald wrote:
The second question is, is it ethical?
If my tax bill is reduced, does this count as aggressive tax avoidance? Is it a normal thing for single translators to do?

By all means you should do everything that's legal in your hand (and creating a company is one of the options) that sets your total tax payment and your contribution to society at its right and just level. This is what any business does, and you are a one-person business.

From here I can only talk about my experience in Spain: as for whether it pays in total, indeed you should check with an accountant. While being a sole trader is probably much simpler to manage, being a company means lots of official steps to be done every year, proper accountancy, quarterly and yearly statements, official registration of your accounts every year, etc. etc. All in all, this could consume your time and cost a fair amount of money in official fees and your chartered accountants themselves. When you phase out from the profession, retire, or simply get an interesting job for a while, it will also mean lots of steps to close your business or to put it to sleep for some years.

All in all, while being a sole trader could mean more taxes, being a company means more red tape, fees, and accountancy expenses. From my experience, a company only pays if you have done your math properly and you are sure that you will have a consistent high income in the long run. If you have years with lots of work and quieter years, or if you are not totally sure that you will be a very busy translator for a minimum of 10 years, I'd stick to your current status.


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Nadezhda Kirichenko  Identity Verified
Local time: 18:52
English to Russian
+ ...


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