Sole trader, limited liability company or what?

[cowpoos]

Make sure you have at least $60k in hand for the second year of operation's provisional tax bill.

That's all I have to say about that.

Huh...based on what??? sorry....but that is very ill formed advice.
that sort of advice is completely and utterly circumstantial!!

[MadDuck]

and as an accountant by trade Ms Madduck....Your advice would be orth its weight!!!

I would not offer my advice in a professional capacity on here unless I had much more detail...

[James Deuce]

Huh...based on what??? sorry....but that is very ill formed advice.
that sort of advice is completely and utterly circumstantial!!

That was my bill.

It's not circumstantial thanks.

I was advised by my accountant to save 50% of my earnings for the first 12 months of operating a Sole Trader business for that reason. I still came up short when the tax man rolled around.

I'd be keen to find out if things have changed since then, as I'd like to give it another crack.

[Winston001]

I was advised by my accountant to save 50% of my earnings for the first 12 months of operating a Sole Trader business for that reason. I still came up short when the tax man rolled around.

Yeah not a bad rule of thumb - in our partnership we worked on 1/3 set aside and fortunately there was always just enough if we drew on the overdraft too. We then had to get that repaid but over time it evened out. If self-employed people voluntarily paid PAYE it would be a lot easier.

[Ocean1]

I still came up short when the tax man rolled around.

Yeah. How to effectively torpedo any potential long term revenue generating start-up initiatives in one fell swoop.

Next week, how to double invoice your clients insurance premiums via ACC AND index the cost to their income.



Y'know, was a time when you paid tax in arrears. Such as it was. All of it, annually, including personal income tax.



*sigh*

[Big Dave]

I also endorse the taxrat as a good friend who knows his tax oats and is a man of the highest integrity.

[cowpoos]

That was my bill.

It's not circumstantial thanks.

So correct for your circumstances??

Not anyone elses?? just yours??

[YellowDog]

If it's just you, then it's much simpler to just go Sole Trader. If it's getting bigger and there's lots of liability (eg if it goes wrong you'll owe TONNES of money) then start a limited liability company.

Good point here. Make sure you get the best indemity insurance around.

[Mully]

I also endorse the taxrat as a good friend who knows his tax oats and is a man of the highest integrity.

And not cos his name's Dave??

[Big Dave]

And not cos his name's Dave??

I knew there was a reason. Thanks.

[James Deuce]

So correct for your circumstances??

Not anyone elses?? just yours??

Any self employed contractor.

My story is repeated around a large circle of my IT aquantainces, some better prepared than me and some worse, to deal with the repurcussions of success. It's not circumstantial, it's one of the pitfalls to prepare for.

If you have advice on how Sole Traders can avoid Provisional Tax bills, then let me know. My accountant was a bit stuck for advice at the time. It's why I'm PAYE now. Mind you I still getting nailed by IRD.

Yeah. How to effectively torpedo any potential long term revenue generating start-up initiatives in one fell swoop.

Tell me about it. Startup costs were reasonably steep too, but if felt like I was doing well at the time.

[Ixion]

So correct for your circumstances??

Not anyone elses?? just yours??

Most people actually. It's the way the system works

When you come off PAYE onto self employed, the first year (or part year) you don't pay any tax through the year. (Cos it's not being deducted each month , as it was when you were an employee). So you get to the end of the year , and feel you're really rich. Then, just as you're about to order another dozen cases of champagne, you open the tax bill, demanding a whole years tax all at once.

And , moreover, as the tax department has now figured out that you're self employed, henceforth you'll have to pay provisional tax. Which is payable in three installments, the first due immediately (if not before).

So, taking some vaguely reasonable figures :

If your income for the first year was , say, 60k ish, then come reckoning up time , you'll get hit with a bill for around 20k (not quite right but I can't be arsed working it out). PLUS - at the same time, a bill for the first installment of provisional tax on NEXT years income (Yep, you have to pay the tax on LAST year , and on NEXT year at the same time). If you estimate next years income to be , say , 100 K (let's be optimistic here), that's around 30K ish in tax. One third for the first installment is 10 K.

So, the tax department want a total of 30K. But, at this point the only money you've actually had come in is that first years 60 K . 30 K tax bill, income of 60 K , yep, 50%.

It's going to be about that, roughly, unless your annual income is WAY small, or way large. Just the way the system works. Can be a tad painful, but, if you're not expecting it. All evens out in the end of course. If the change from employed to self employed happened at the end of a tax year, it's not such a hit.

[Ocean1]

how Sole Traders can avoid Provisional Tax

A) Refrain from making a (visible) profit at all.

B) Grow so fast you're always ahead of the tax wave.

C) Fuck off overseas.

[boomer]

Become a ltd company and see an accountant.. BDS accountants are good. They'll talk and walk you through the best/cheapest/more profitable options for you...


I'm a self employed contractor and have my own business doing so.

[Noidy]

My accountant advised to go the limited liability company path as it is easier to "distribute" profits to shareholders (me and my wife) to change the way the tax is taken i.e. paying personal tax rates as opposed to company tax rates. I take drawings as opposed to a wage and he does the adjusting. My earnings last year were calculated at about 1/3 of my drawings. Next to no tax and ACC was 5/8 of FA. Dont ask me how he does it or what he does, thats what I pay him for. Find an accountant who has other business interests. He is also looking for all the "edges" he can find for himself and will pass on these to you

I agree with Ocean1 (havent made it overseas yet)