From the different business structures available to you, to the tax pros and cons, setting up a business is a challenge but one that can ultimately be very rewarding. To help you navigate the complex world of forming your own company, here are some things you need to know…
What’s the difference between a Sole Trader and a Limited Company?
| Sole Trader | Limited Company |
| You’re a one man band; you are the business, the owner, the manager and the staff. | If you incorporate your business, it becomes a separate legal entity, you become a shareholder, and you serve the company as a director. |
| In the unfortunate event that the business has a legal dispute, or worse still, if the business fails and owes money, as a sole trader you would be personally responsible. | Limited company finances are separate to your personal finances, so your personal assets and credit rating are safe. |
| As a sole trader you’ll pay Income Tax and National Insurance on your business profits in the year that they’re earned. | A limited company pays Corporation Tax on the business profits in the year earned. Company tax rates are currently lower than Income Tax rates. |
| As business profits for a sole trader have already been subject to Income Tax, you’ll have no further tax to pay when you withdraw money from the business. | Any monies withdrawn from a limited company would be subject to Income Tax and National Insurance at the time the payment is made. Please note: as a director of a limited company you can decide when payments are made, which may allow you to gain a tax advantage. |
Setting up a business as a Sole Trader
| If you think setting up a business as a sole trader is right for you, you’ll need to: |
| register for Self Assessment |
| file a tax return every year |
| make sure you keep records of your sales and expenses |
If your turnover is more than £85,000 you must register for VAT. More information on this can be found in our free guide. You may need an accountant to help you with the above, you can find out more about how we can support you, including how much it costs.
Choosing a business name
As a sole trader, you don’t need to register your business name and can trade under your own name, or one you choose for your business but remember, you can’t include the words ‘limited’, ‘limited liability partnership’, ‘public limited company’ or the abbreviations ‘Ltd’, ‘LLP’ or ‘plc’.
You must also be sure that the name you choose is not the same as a trade mark that already exists. Click here to check if the name you’d like to use is already a trade mark.
Setting up a Limited Company
| If you want to set up a business as a limited company, you’ll need: |
| a company name and a company address |
| at least one director and at least one shareholder |
| Standard Industrial Classification (SIC) code – a 4 digit code that specifies the nature of your business |
You’ll also need shareholders to agree to create the company and the written rules – known as ‘memorandum and articles of association’.
Once the above is taken care of you can register your company online with Companies House to complete your company incorporation.
Don’t be put off if all this seems like a bit of a headache, we can take care of this for you as part of our accountancy packages for start-ups. Simply give us a call on 01253 600 150 or get in touch below and we can help get your business going!
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Once you’ve chosen the best route for you and your new business, there are other things to consider, like Business Insurance and what expenses you can claim. Check out our guides below for more help.
Should I register for VAT?
Expenses Guide – Limited Company
Expenses Guide – Sole Traders & Partnerships
