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Good luck. Having worked in industry since 1991, I set up 4 years ago and it has turned out to be a great move. Happy to help with your startup.
On the specifics, HMRC are usually pretty lax on folk who tell them late about trading - to be fair they are pretty lax about just about everything and dealing with them is by far the worst part of your new job.
Strictly he should register as self-employed and then cease trading on the day of incorporation. Personally I am OK with building in a bit of sole trading into the limited company accounts with these sorts of clients - though you'll no doubt get posters in this thread who will very much frown on this.
However, in this case we have nearly 4 months of such trading. Banks can often take up to 2 months to sort themselves out with limited company bank accounts, though it can also be a week. The worst I've seen has been 5 months from date of application - from a restauranteur who'd been profitably trading through the same bank for 18 years! So if you get any bank muck-ups that will be 6 months of trading before anything hits the company bank account.
IR35 is by far the most crucial long term issue you've mentioned and if you can give this guy good advice on this front you'll pay for your fees many times over.
Ah, but...
IR35 doesn't apply to sole traders. What is at issue here is employed/self employed status. In this case the risk is with the 'employing' company. If your client is later found to be an employee then payments to be him will be treated as net pay and the employer is liable for PAYE and NI on the grossed up value.
If you incorporate then the risk passes to your client under IR35. You need to consider which is the best all round solution.
Even employees NI?
Thanks Neileg. I'm also just starting out in practice and have a similar client. Really helpful comment from you, but just so I'm clear, in such an instance is the employer liable for not just the missing PAYE, and missing employer's NI, but also the employEE's NI too? So no (tax) risk at all to the sole trader?
Thanks so much.
useful link
http://www.contractoruk.com/ir35/can_i_beat_ir35_being_sole_trader.html
Overall when led through this stuff in plain English, every single client or potential client I've discussed this with has simply asked "Can you form my limited company please?"