UK based translators - risk of being sued and company type (sole trader vs limited liability)
Thread poster: Vivien Green

Vivien Green  Identity Verified
United Kingdom
Member (2013)
French to English
Jul 22, 2013

I am in the process of establishing my business officially and have to decide whether to be a sole trader or a limited liability company. I have received conflicting advice from various sources however so am looking for a few more opinions on here.

I know that there is more work involved in setting up as a limited liability company but I was wondering if it is advisable to go down this route for professional indemnity reasons.

From what I can see it is hard to find insurance that gives full professional indemnity cover (the insurance offered via the institute of linguists does not cover work taken on from US and Canadian companies for example and it seems other insurers also exclude work coming from certain places or on certain subjects). Would I be leaving myself seriously unprotected by setting up as a sole trader? Does anyone know if most translators typically set up as one rather than the other?


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Camelia Colnic  Identity Verified
United Kingdom
Local time: 03:44
Romanian to English
+ ...
self-employed Jul 22, 2013

I would advise you to be self-employed for start.

And in regards of an insurance: It is useless to buy an insurance without you having work. Some of the agencies(if not all of them), have a professional indemnity insurance for their translators. (You should check their contract)

Accepting work from direct clients who live outside UK is pretty risky. It is risky to accept work from agencies as well, as some of them don't pay you (and this is valid everywhere, even in UK).

I think that LTD is usually for agencies, that's why I would advise on self-employed. It's the simplest way. You just register as self-employed, get an UTR, you do your personalised invoice(or by an invoice book/receipt book from the shop), write down in an excel all jobs done (incoming and outgoing costs), once a year you do the self-assessment and that's it.

When you start getting work from organisations that do not insure you, you can research upon a proper insurance, that may help you in different situations and which is suitable for your needs at that time.


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Karen Stokes  Identity Verified
United Kingdom
Local time: 03:44
Member (2003)
French to English
Mainly sole traders Jul 22, 2013

Hi Vivien,

77% of respondents to the joint CIOL / ITI rates and salaries survey carried out in 2011 were sole traders, so that should give you some indication of what most people do, at least in the UK.

I've been working as a sole trader based in the UK since 2002. Most of my clients are in Europe and I haven't felt the need to set up a limited company so far, though I do like the peace of mind of PII. It might be worth talking to individual providers to ask for a personalised quotation. I've run into the US exclusion problem occasionally but found it was fine as long as income from the US didn't exceed e.g. 10% of turnover - it's always worth negotiating, anyway.

Best,
Karen


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Peter Shortall  Identity Verified
Local time: 03:44
Member
French to English
+ ...
I recently switched from sole trader to Ltd. Jul 22, 2013

As far as liability goes, my understanding is that trading as a limited company limits your exposure to the company's assets, whereas working as a sole trader means that your personal assets are potentially at risk. Not that the likelihood of being sued is high anyway, so I wouldn't dwell on it too much, but it's like winning the lottery - extremely rare, though it does happen to some people (only it's a lot less nice!)

I don't know whether you've considered this angle, but another reason why a translator might wish to "go limited" is that if you set your salary at the right level, you can save yourself a fair amount in NI contributions. There are online calculators you can use to get an idea of how much you would save in a year for different income levels. If your annual income is likely to be reasonably high - say £30k or more - then it can certainly make financial sense to trade as a Ltd., but bear in mind that your accountancy costs will be higher. You would also need a cushion of savings to tide you over during your first year, as the low salary (assuming you want to minimise your tax/NI burden, which people generally do!) would mean that you have to live on a very modest income of approximately £9k until you can draw your first dividend.

There is, as you say, more work involved if you're trading as a Ltd. As my company hasn't been trading for very long, it's a little early for me to say just how great that burden is; so far I've found it easy, but I have yet to get to grips with the intracacies of Sage accounting software, which I'm due to speak to my accountant about soon, so I might change my mind about that shortly!

If the financial/tax aspect is particularly important to you but there's a chance you won't make very much in your first year (which tends to be the case with translators new to the industry), I would think it makes more sense to start as a sole trader and then perhaps consider going Ltd. later on once you feel that your business is firmly established and you're making enough money to justify switching. That way, you'd only be undertaking extra work and expense if you were reasonably confident that the financial gain would make it worthwhile. But financial factors aren't the only ones to consider, of course; it's one of those decisions that depend very much on your personal circumstances and which factors matter most to you.

Good luck!


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Charlie Bavington  Identity Verified
Local time: 03:44
French to English
Not sure this should be your key factor Jul 23, 2013

Vivien Green wrote:

I know that there is more work involved in setting up as a limited liability company but I was wondering if it is advisable to go down this route for professional indemnity reasons.


There is a little ambiguity in the phrase above (no criticism intended, merely an observation) as I'm not sure whether you mean *solely* for PI reasons, or whether PI reasons are *one* of the factors you want to consider. That said, I would think in either case, the answer is probably that it should not influence your decision unduly.

Limited liability does not afford boundless protection to company directors (assuming you would be a director); you can be sued for company management-related reasons. Usually, admittedly, it's other company members (or the company itself) doing the suing, but other parties in theory can (e.g. creditors if a director misrepresents the financial position). Note that apart from PI, directors can also get "D&O" insurance to cover the risk to their personal assets from being sued personally; note too that, significantly, D&O insurance often *excludes* protection from proceedings against a director for failing to maintain adequate insurance.

Ergo, in theory, even forming a company might not protect your assets against a vindictive and persistent client if you decide not to take out PI insurance. That must be weighed against the oft-cited small chance of suffering a claim in the first place, and then further against the surely microscopic chances of a client, having failed to secure adequate compensation from your (uninsured) company, then deciding to pursue you in your capacity as a director. I should point out I've not found a case of a client suing a director for failing to ensure that the company had insurance that the client could claim under. I'm just saying I can see the (slim) theoretical possibility, which is backed up by the fact D&O insurance usually excludes from its cover the failure to properly insure the company.

There is also the more general point, worth making, that forming a limited liability company does not suddenly make one immune from the consequences of one's actions.

If PI is just one of many factors you're weighing up, then yes, financially it starts being attractive, as Peter says, around earnings of 30k+. If I may correct a minor point; yes, under these circs, your director's salary is (as it stands) around the £9k mark (low enough to escape personal income tax liability; high enough to incur a minimum NI liability to ensure a qualifying pension year) and this is topped up by dividends but you do not have to wait a year to make dividend payments; interim dividends are possible (if not essential!).

See also my blathering here: http://cbavington.com/blog/2012/04/10/start-me-company-up/

Disclosure (FWIW): I operate as a limited company, and have PI insurance

[Edited at 2013-07-23 10:02 GMT]


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Anton Konashenok  Identity Verified
Czech Republic
Local time: 04:44
English to Russian
+ ...
A reality check for professional liability insurance Jul 23, 2013

I understand that some clients require translators to be insured against professional liability, but other than that, has anyone of you reading this ever heard of a translator being sued for professional negligence or the like? I've been translating since 1985 and I haven't.

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Charlie Bavington  Identity Verified
Local time: 03:44
French to English
I have, which is why I got it Jul 23, 2013

Anton Konashenok wrote:

I understand that some clients require translators to be insured against professional liability, but other than that, has anyone of you reading this ever heard of a translator being sued for professional negligence or the like? I've been translating since 1985 and I haven't.


Friend of friend, blah blah, was taken to court to recover the costs of reprinting a brochure after a serious mistake was discovered (she'd said "X is not Y", when the source said "X is Y", or vice versa, and it was crucial to the whole shebang). After I heard that, I weighed up the £60 annual premium versus the effect of being forced to shell out €40,000 to reprint a billion leaflets no-one was going to read anyway, and decided it was worth it. Maybe I was suckered by a translation urban myth, although I took it as genuine under the circumstances in which I heard about it.

That said, your point is relevant to the discussion as to whether this factor should influence the choice of legal form in the UK, and the weight it should be accorded (i.e. very little).


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Anton Konashenok  Identity Verified
Czech Republic
Local time: 04:44
English to Russian
+ ...
to Charlie Jul 23, 2013

The case you quote is quite curious for a different reason: apparently, the brochure went to print directly as translated, without further editing/proofreading. Whoever decided to save a few euros on the second pair of eyes really should have known better...

[Edited at 2013-07-23 11:02 GMT]


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Charlie Bavington  Identity Verified
Local time: 03:44
French to English
The risk of supposition Jul 23, 2013

Anton Konashenok wrote:

... apparently, the brochure went to print directly as translated, without further editing/proofreading. Whoever decided to save a few euros on the second pair of eyes really should have known better...


Apparently, apparently.... indeed I may have skipped many of the tedious details that were not, in my view, germane to the discussion at hand. She was in fact contracted to produce a print-ready text, including as many pairs of eyes as deemed necessary, by a client not in a position to judge. Which is why the work was subcontracted in the first place. Her ultimate responsibility for the end product, insofar as the printer printed exactly what he was given, was in no doubt.

That said, I appreciate, having previously adopted the stance you still have, that a couple of forum posts from me will not persuade you to change that stance (although I note you don't actually say you don't have it!). There probably needs to be a certain weight of evidence. That particular story (in its full details and under the circumstances I heard it) tipped the balance for me. I'm not trying to persuade you to change your mind. I merely report that it can legitimately happen. You are free not to believe a blind word of it, or that I have been misled, or to believe that the lawyers must have missed a trick regarding her liability, and that if you had been her advisor, she would have skipped merrily away financially unaffected

But in a way, that is not the discussion. The discussion is whether having, or not having, PI cover makes a difference to one's choice of legal form. Assuming the premiums remain the same (and in my personal experience, they do) so there are no cost implications, then:
a) if one is covered by PLI, one gets the same protection whether self-employed or a limited company (and director of same)
b) if one is not covered by PLI, one exposes oneself to the same (yes, small) risk whether self-employed or a company director; and although arguably the risk as a director is smaller (given the extra steps that would be involved in seeking redress), it may not disappear entirely.

Given the scale of the risk (as you correctly point out, it's small) and the lack of any substantial difference in impact one way or the other, I would contend, to answer the question of the thread title, any decision on PLI should not be a decisive factor in deciding legal form.

Instead, having decided on a legal form on the basis of other factors, decide whether or not to take out professional liability insurance on the basis of your attitude to risk (notwithstanding the requirement expressed by some clients to have it anyway - I operated happily without it for years, believing the risk was non-existent).

Edit: naturally, if you believe the risk is absolutely and definitely always zero, then the question does become rather pointless, I can see that

[Edited at 2013-07-23 11:54 GMT]


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Łukasz Gos-Furmankiewicz  Identity Verified
Poland
Local time: 04:44
English to Polish
+ ...
Ltd's Jul 23, 2013

With Ltd's, you need to pay attention to any special rules on sole-shareholder liability, which may actually be similar to the liability of a sole-proprietor, and also director liability may put you on the same footing as a sole-proprietor anyway, at least in some cases defined in appropriate statutes or precedents. I wouldn't expect any free lunch on the liability front. Also make sure you don't walk into double taxation, depending on how much of your payouts (dividends, salary or whatever else you draw) is deductible from the company's own taxes (lest you pay income tax twice on some of your money).

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Vivien Green  Identity Verified
United Kingdom
Member (2013)
French to English
TOPIC STARTER
Thanks for your input! Oct 1, 2013

I had a few hiccups getting officially set up but finally am - I opted to be a sole trader (for multiple reasons - sorry I didn't reply to your question at the time Charlie, these past few months have been a bit chaotic for me for a number of reasons) but I am also going to join the ITI and take advantage of their professional insurance (which my Business Gateway advisor told me was pretty much compulsory despite what people have written here).

The information posted on this thread has been really informative though and I will undoubtedly refer back to it in the future as I plan to review my business status every few years. For now I do not earn enough for it to be worth my while registering as a limited liability company but it is reassuring to know that I can change my company type relatively easily.

I had really great help and support through Business Gateway who helped me put together a business plan but having additional help through this forum from people actually working in the industry has also been invaluable.


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Louisa Berry
United Kingdom
Local time: 03:44
Member (2009)
German to English
+ ...
Towergate insurance (through ITI covers North America) Oct 1, 2013

The insurance broker used by the ITI, Towergate covers you for work in the US and Canada, you are just subject to higher excesses in the event of a claim

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