JOHN GLOVER: Hello and welcome to another Pendragon Straight Talk. This week’s question is quite close to my heart, I get asked this quite regularly and it’s the question of should I set up my own Pty. Ltd. Company or run through a Salary or Contractor Management Company? We help on both of these, so it’s an interesting question.
It’s obviously a personal choice, but you have to think what is the Pty. Ltd. Company for? Why are you setting it up?
In my eighteen years of experience, if you’re a one-man band, I think the most cost effective thing to do is run through a salary or contractor management company. Why, I hear you ask – well, here’s some of my reasons.
Under a Management Company, there’s no need to spend your precious time raising invoices or chasing your money. Your time has a great value both to your personally, and it has a hard cash worth. I mean, just think about it, what are you worth per hour? So on weekends if you are working on your invoicing or chasing money, how much time is that taking up? You don’t have any BAS Statements or directors liabilities, you have no company tax returns to do, you don’t even have personal tax returns to do because normally the management company will cover that for you.
All the insurances that you require to run as an independent contractor, are covered by the management company, workers comp, public liability and professional indemnity – this could be a saving of up to $2000 a year. All the expenses that you can claim through a Pty. Ltd. Company, you can claim through a management company.
You will actually have some super saved for yourself through a management company, whereas if you have your own Pty. Ltd. Company you are not obliged to put anything away for super, and a lot of people don’t and panic at the end.
When you come to applying for a loan, this is an interesting one, under a management company you have records that say you have earned so much, you’ve got payslips and you can prove your income and that’s what they will lend you the money against. Under a Pty. Ltd., unless you give yourself a salary through that, a lot of banks and loan companies, even car companies, don’t want to lend you money.
Cashflow, both are similar, but don’t forget if you take cash out of y our Pty. Ltd. Company you will still owe tax on it sometime, you can’t just dip into it and take it out just because it’s a company, and as I said before you can run the same expenses or the costs of a company, through a salary management firm.
If you’re looking to set up a Pty. Ltd. for another reason, such as you’ve got a project or you want to employ other people, you’re actually going into building a bigger business, then yes, that would be the perfect reason to set up a Pty. Ltd. Company, because it gives you protection and all sorts of stuff around that. But even then, you can look at different ways of doing that, because in the New World of Work there are other ways of running Pty. Ltd. Companies.
My personal thoughts are that a Pty. Ltd. Company is a mindset – I run my own company, I can claim business expenses, I can take some money out that perhaps the tax man doesn’t see, it’s not true soon as you move any money out of that Pty. Ltd. you still have to account for it somewhere. You can draw cash out if you like, but you will still end up owing the tax man the difference between company tax and personal tax, so you still pay the full amount of tax.
In both you are your own boss, I agree, however, in one you have less hassle and all you have to do is turn up to work and reap the same rewards as the other.
These are some of my thoughts – what are yours?
Please let us know.
I look forward to hearing from you, and I look forward to talking to you next week.
Thank you for listening.
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