This article has been written by our client who has chosen to share their experiences anonymously…

Having both worked for large creative agencies, myself and my partner decided to set up our own graphic design company in 2009. It was an exciting move, and while we knew a lot about creative, we realised we knew very little about running a business!

We were fortunate that many clients we’d worked with in our previous agency wanted to come with us – and considering there was just two of us working from home, we were proud to count some big names among them such as B&Q and Twinings.

My role was as account manager and copywriter while my husband did all the design and artwork –we wanted to keep things simple this way and didn’t want to employ other people, so whenever we had more work than we could handle or that was outside of our skill set, we’d use one of a number of freelancers that we had great relationships with.

Our hard work paid off in the first year and we did very well, but hadn’t thought about what it meant in terms of tax we’d owe. We were so focussed on being successful that when our personal tax was due, we found ourselves with HUGE tax bills that we hadn’t anticipated or planned for. Looking back, I’d say this was down to naivety and lack of research on our part, and we should have asked our accountant more questions.

With a little help from a family member we overcame that hurdle and our accountant advised us to become a Limited Company (and VAT registered) which made much more financial sense and meant we could pay ourselves through a combination of salary and dividends, a set-up that we hadn’t previously been aware of and which would have saved us a great deal of money in that first year. The process to become Limited was quick and simple and the transition was smooth. Aside from some additional paperwork, increased accountancy costs and more filing required to keep hold of records, nothing really changed.

We operated efficiently in that way for the next five years until September 2014 when my husband unexpectedly passed away in his sleep. Without going into the trauma that entailed, when I did start to work again it had to be in a different way. Previously, as partners both in life and work everything we earned was ours. Now I needed to pay someone to do the work that he had previously done so half of my income was now an outgoing. After a year of trying to carry on as we had previously it became apparent that being a limited company was no longer beneficial to me. I wasn’t earning enough and my accountant advised me that it would be better for me economically to return to being a Sole Trader and cease being VAT registered as I was no longer near the threshold.

In the same way that it had been the right decision at the time to become limited, this was definitely the right decision to revert to being a sole trader. It’s a simpler way for me to work now that I am earning less and there are less associated accountancy costs and paperwork in general. Moving in this direction, from limited back to sole trader, there was a little more paperwork to fill in but the majority was handled by my accountant and again, it was a very smooth transition.

Having been through this process twice (in different directions) my main piece of advice would be, if you don’t know – talk to your accountant! If we’d had an all-inclusive package with our accountant I think we’d have asked more questions rather than be reluctant to run up a bill.

Also, do your own research when you first set up – you don’t need to be an expert but knowing the basics will help enormously. And finally, don’t worry if you change your mind about the way you work. It needs to be beneficial to you, is easily done and changing the way you work, for whatever reason, isn’t something to be embarrassed or worried about, sometimes situations just change!

Thanks to our client for sharing their story and their experiences of working as a sole trader and through a limited company. If you are wondering which is the best structure for your business and would like to discuss your options, our team of accountants are here to help, call today on 01242 504510. We’ve also a handy guide explaining the differences between and the advantages and disadvantages of each way of working.