Should film businesses operate as sole traders or limited companies?

If you work in the film industry as a specialist, with costumes, cameras, lighting or visual effects, what’s the best structure for your business? 

Chances are you’re thinking of a limited company or sole trader, two of the clearest cut ways to set up your own business. But which do you go for? In this blog post, we’ll look at some of the pros and cons of these two options.

Meanwhile, we have seen some self-employed freelancers in the film industry expressing regret over opting to trade as a limited company, as was the norm a decade or two ago, so we’ll also be going through what you can do to exit this structure if that’s your wish.

Sole trader versus limited company

Let’s start with the basics and clear up exactly what it means to trade as a sole trader, and as a limited company.

In essence, a sole trader trades completely as an individual under their own name. In other words, they and the business are one and the same. 

A limited company, on the other hand, is a completely separate legal entity to the owner, even if they are the sole shareholder. 

Each option has its own advantages and disadvantages. For instance, registering as a sole trader is relatively straightforward. There are no setup fees and it’s also simpler in terms of tax administration, but you will be personally liable for business debts.

Operating as a limited company is usually more tax efficient as you won’t face income tax and National Insurance on your profits, unlike a sole trader, but pay corporation tax instead.

Trading this way usually comes with higher workload and higher accountancy fees, however, but remember that accountancy costs are often offset by the money saved through the financial advice you can get from a quality accountancy firm.

How to decide

If you’re unsure on what route to take, then listening to what fellow creatives have to say is a great place to start. 

What do people offering similar services to you have to say about the time consuming nature of a limited company? Have they noticed a preference in the film industry for freelancers working through one?

In our experience, most creatives do eventually decide to set up a limited company, but it’s certainly not the obvious choice it might have been a few years ago.

Beware that everyone’s needs are different, too, in which case an accountant is perfectly positioned to help once they understand your business goals and personal preferences.

We at Green & Peter have worked with creatives for more than 20 years, during which time we’ve learned a great deal about doing business in the film industry.

Some of the needs, wishes and concerns clients bring to us include:

  • avoiding hassle
  • low administrative costs
  • tax efficiency 
  • liability of costs and debts
  • landing bigger commissions.

Once you’ve sat with an advisor, crunched the numbers and carefully weighed all the pros and cons, it should be easier to see which path is right for you.

Exiting the company structure

We have noticed an uptick in people who formed limited companies when it was in mode during the past decade or so who are now regretting doing so.

Some just aren’t getting enough business, so their profits are down and they can no longer justify extra administration and accountancy costs involved with a limited company.

Others are in fact no longer seeing a lower tax liability given the recent changes to IR35 rules for freelancers in the private sector.

If you want to exit the limited company structure to become a sole trader, then you will have to strike off your company from the Register of Companies – in other words, voluntary liquidation.

Financial reports must be prepared, outstanding corporation tax and other liabilities paid, and assets disposed of, which can be ‘sold back’ to you.

You will then have to close the bank account, the distributions of which can be arranged with HMRC to be subject to capital gains tax, rather than income tax. You will then be able to set up business as a sole trader.

Just because you personally suspect you would be better off switching your film business from a limited company to a sole tradership does not necessarily mean it is actually the best choice.

Every business is different after all, which Green & Peter fully understands, so if you’re looking for advice on your self-employed business structure, give us a call on 020 8446 8100 or fill out a contact form.

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