When starting a business it can be difficult to decide whether or not you should register as a Sole Trader or become a Limited Company. You may not even know what the difference is, so we have put together this blog for some guidance.
The main difference between a Sole Trader and a Limited company is that a Sole Trader owns the business on their own and is personally liable for any debts which the business may incur. With a Limited Company there is a distinction between personal and business liabilities and there can be multiple directors. If anything was to go wrong with a Limited Company the owner(s) would not be personally liable and they would only lose what they invested in the business and not personal assets.
For the above reason it may be trickier for a Sole Trader to get finance than it would be for a Limited Company. However, there are pro’s and con’s to both business structures.
With a Limited company comes further responsibility such as: Director’s Fiduciary Responsibilities, these are your legal obligations as a director. Due to these added responsibilities it can be more costly to become a Limited Company, you should seek advice from a professional such as ourselves to decide whether becoming a Limited Company suits your requirements.
It’s easier to set up as a Sole Trader and you only have to fill in a Self Assessment once a year. You must register yourself as self-employed before 5th October in your second tax year. As a Limited Company you will need to file an annual return as well as file annual accounts. You will need to file your first accounts 21 months after the date you registered with Companies House. When you register your business with Companies House you will automatically be registered for Corporation tax at the same time. If you are the only director you will need to register yourself for PAYE.
If you wish to become a Limited Company there are fees involved to incorporate your business. Here’s a link to HMRC’s website for further info.
Being a Sole Trader can be more discreet than a Limited Company as company directors and accounts for Limited Companies are displayed on Companies House which is accessible for anyone to view.
Every business is different and there is no right and wrong, but choosing the right business structure is important as this can have an impact on your profits and success.
If you’re still unsure of how to get started or what structure would suit your business best then please get in touch and we can give you some guidance. We would love to help you get started on your business journey.