Share this content
11

Sole Trader/Partnership/Ltd

Which option would be easiest to run - Sole Trader/Partnership/Ltd-LLP?

Didn't find your answer?

Search AccountingWEB

A family member is embarking on a new venture, - the writing/illustration of children's books, with a friend. Neither are currently PAYE workers (she has recently left her full-time job, the other person is a contractor - and does his Self-Assessments each year). 

Is it possible to register as a sole trader, recording the costs and earnings associated with the books on an annual SA, split 50/50 so that the other person  records the matching information on their return? Or would it be more beneficial (in terms of NIC contributions) to set-up a partnership between the two of them? I think they are less swayed by the idea of being incorporated, not wanting the extra costs and filing obligations associated for now (both have young families so money and time is at a premium). 

Replies (11)

Please login or register to join the discussion.

By johngroganjga
10th Sep 2019 20:01

If they are carrying on business in common with a view of profit (recognise those words?) they are, ipso facto, a partnership, unless they are a company.

Thanks (0)
RLI
By lionofludesch
11th Sep 2019 08:15

I agree. How can two of them be a sole trader ?

Unless one is emloyed by the other. Which is an option - though not one I'd be thinking of.

Thanks (0)
avatar
By paul.benny
11th Sep 2019 10:05

If this is a joint endeavour, they need to agree up front on division of labour and division of income. It's not necessarily 50/50 as you suggest.

And - agree how the thing will end and what to do when they disagree. Just because they're friends now, it doesn't mean they still will be when one doesn't like the other's work. Or gets an offer to work separately, etc.

Thanks (0)
avatar
By Tax Dragon
11th Sep 2019 10:14

Your question is about "ease of running" (you mention NIC, but I don’t understand what you are thinking there). But a couple of 'bonus' tax notes for you.

Partners are taxed as if they were sole traders, so being a partnership (which, as John says, is a matter of fact) makes no difference taxwise – beyond the need to keep partnership records and make partnership tax returns.

If ever they do incorporate, there'll be an income tax charge which will trump the CGT one. They should take advice (specifically about the income tax charge) before they incorporate.

Thanks (0)
Replying to Tax Dragon:
avatar
By mumpin
11th Sep 2019 11:18

Can you explain why there would be an income tax charge on incorporation?
I don't think I've come across this before.
TIA

Thanks (0)
Replying to mumpin:
avatar
By Tax Dragon
11th Sep 2019 11:31

One, possibly more, of the chapters in Pt13 ITA 2007 will apply.

Thanks (0)
Replying to Tax Dragon:
avatar
By mumpin
11th Sep 2019 12:20

Good Grief! The nascent Enid Blytons are being encouraged to seek advice on Tax avoidance legislation, which might arise on eventual incorporation of a partnership they are still considering forming...
Hope they have a big budget for accountancy advice.

Thanks (0)
Replying to mumpin:
avatar
By Tax Dragon
11th Sep 2019 12:33

I recommended taking advice about incorporation before they incorporate. It's common sense, but not all OPs are possessed of common sense. (And it's an issue not everyone is aware of, as your reply showed.)

You asked me to expand on the nascent issue. I obliged. I don't get why you seem critical of what I have said.

Thanks (0)
Replying to Tax Dragon:
avatar
By mumpin
11th Sep 2019 13:16

Sorry if I seemed critical.
Thanks for taking the time to elaborate on what you had written.

Thanks (0)
Hallerud at Easter
By DJKL
11th Sep 2019 10:15

Not wishing to be cynical but my first thought ,when considering structure (given limited liability probably not a pressing priority) ,would be ensuring any losses that arise from the activity can be relieved by each of them.

As a word of caution I believe children's books are a very competitive area- are they still mainly printed rather than electronic as given print costs (colour etc) getting a publisher cannot be that simple or straightforward- hence my concern re losses. (the previous property manager at my work retired and wrote a few books but I think, for the first one, he self published- not a cheap option)

Always thought I ought to write children's books,"The Greedy Accountant" has a certain ring, when ours were small we were strong armed into making up their bedtime stories (pester power); reading from a book was not good enough; catch is I now cannot remember most of the stories as the odd ones were actually passably decent and got a laugh (Biased audience, of course) and could have been my pension.

Thanks (0)
avatar
By JoF
11th Sep 2019 10:25

Totally agree with Paul, ensure they sort an agreement right from inception to cover any fallouts. They will think that they will never fall out, but anything to do with money turns the best of friends into enemies fairly rapidly. My Dad back in the 1970s had a sign in his office that read 'I dont mix friends and money'.

Thanks (0)
Share this content