When starting your own business you will need to decide whether it’s best to become a sole trader or limited company. As a sole trader you and your business are one and the same, meaning you are fully responsible for any liabilities that your business incurs. As a limited company, your business is seen as a separate legal entity independent to you as a person and so limits some of your personal liability for the business. However, there are other factors to take into consideration -

Sole Trader v Limited Company

As a Sole Trader:

  • There are no limited company formation fees
  • Accountancy costs are usually less than those of a limited company
  • There are less governmental departments involved when handling your business tax accounts
  • You simply complete your self-assessment tax return once a year
  • You can easily open and close down your business
  • You are personally responsible for covering debts or legal issues your business incurs
  • There are less opportunities for tax planning to maximise on your earnings

As a Limited Company:

  • If you expect to earn over £25,000 you may want to choose to be a limited company in order to make the most of tax planning opportunities including flexible methods to pay yourself
  • Some customers or clients will only work with limited companies
  • You are not personally responsible for the debts or legal issues incurred by the business (unless you have acted fraudulently)
  • You will have to pay a fee to form a limited company
  • You will have to file your accounts with Companies House, and both your tax and accounts with HMRC
  • There is no Class 4 National Insurance to be paid as a company
  • Accountancy fees may increase but this is usually due to them taking on more of the administrative tasks such as the filing of accounts, business tax and corporation tax

We understand that every business has its own individual needs. We’ll work with you to create a bespoke plan of action to achieve the outcome you’re looking for.

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