When setting up your own business there are a few choices to make. One of them is the legal form your business is going to take. Should you set up as a Sole Trader or Limited Company?
Sole trader vs self employed
A sole trader is basically the same as someone who is self-employed. As a sole trader you run your own business as a self-employed person and are solely responsible for the success of it. Being self-employed means, you pay your taxes via self-assessment rather than via PAYE. Being a sole trader refers to the structure of your business, whereas self-employed refers to how you pay your taxes.
As a sole trader you do not need to register your business at Companies House, you don’t need a director and there’s generally less admin and paperwork involved. You might have to pay higher taxes than a Limited Company, though. You do need to register with HMRC, which you can usually do with a phone call or online. Remember that you have to do that even if you only work part-time as self-employed. From then on you will need to file an annual self-assessment tax return by the tax deadline.
All you need to do is run your business, keep all your receipts and invoices and complete the annual tax return in the form of self-assessment.
Sole trader vs Limited Company
If you decide you want to start a Limited Company, you need to register with Companies House and appoint a director (which is most likely yourself to begin with). In addition to a tax return you also need to file company accounts.
There are many advantages to running your business as a Limited Company. In addition to tax benefits and being taken more seriously as a business, your business is also its own legal entity. This means that should the worst happen to your business (and it wasn’t due to illegal activities of any of the directors), the business losses do not transfer to the business owner. The company goes bankrupt, not the business owner.
However, there are also disadvantages; there is a lot more admin, more complex legal and reporting requirements and it can be more difficult to take money out of a Limited Company than from a sole trader business.
How Alba can help
If you would like advice on which form your business should take or help with setting up a Limited Company, please get in touch. Here at Alba we can help with the many decisions you need to make when setting up a business. You can contact us via email at admin@alba.uk.com or on the phone 01509 853779.
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