Posted: 1st March 2023
Sole Trader V Limited Company
When you run a business, there is so much to think about first when you set up, and then later when you start to grow. And one of the things you might want consider is your business set up.
One of the things to consider is what business structure it should take. Do you want to be a self-employed sole trader or a Limited company?
Let’s take a brief look at both of these and the pro’s and cons of both.
Sole Trader – Self Employed
Registering as Self Employed
If you are a one-person band i.e. there is just you in the business then you are classed as a sole trader. Before you think about trading you need to register as self-employed with HMRC.
Once registered with HMRC you will get a ten-digit Unique Taxpayer Reference number (UTR). Keep this in a safe place as you will need it to register online to submit your self-assessment return. Also, clients might insist on seeing your UTR number before hiring you.
The Tax year runs from 6 April and ends on 5th April the following year. Your self-assessment needs to be submitted online by 31st Jan the following year and you need to pay any tax owed then too.
Depending on how much tax you have to pay, you might have to pay half in January and a second payment which is due 31st July. This is usually half of next years tax.
You have to keep a record of your business income and outgoings if your self-employed. You need to keep track of all business expenses and personal income. The more detailed you can be with your business expenses the less income tax you need to pay. You pay income tax on your overall profit not income.
A limited company is completely different than a sole trader, as you have to register with Companies House and send yearly reports to companies house. You must have a UK registered office address and the company must comply with Government regulations.
Registering your company
Find a suitable company name. Decide upon an address. You can use your home or office address, but you can pay a small fee to use your accountant or solicitors address. You can also have a virtual office address which is also becoming popular.
You need to have at least one Director in the business
You need to have at least one shareholder, but you can have as many as you like
Decide upon the correct Standard Industry Classification (SIC) code
You also need an agreement from all shareholders and directors on what to have in your Memorandum and articles of association
Also Details of people with significant control (PSC)
It is a legal requirement to keep financial records. You must also submit annual accounts and financial reports to companies house which are displayed in the public domain.
So, in fairness it is totally up to you which company set up is best for you, it’s an individual choice. But, if you would like more information regarding the above, then do not hesitate to get in touch.