Sole Trader, or Limited Company?

There are two principal forms that your new business can take: sole trader or limited company. It’s important that you use the appropriate trading format for the work that you will be doing.

The format you choose will depend on a number of factors, including how much money you expect to make, and what you want to do with it.

This is the simplest route if you are the only owner of the business. However there are certain obligations you must fulfil with HMRC, and tax obligations you must meet. As a sole trader you keep all profits after tax, but you are also personally responsible for any losses your business might make. There is no distinction between you and your business, so you bear all legal and financial responsibility.

Setting up a limited company requires more administration than registering as a sole trader, but can be less of a risk in the long term. A limited company is a separate legal entity to its directors, which means that the company is responsible for everything that it does, separately to you as an individual. Any profits belong to the company, rather than you, so you are paid as an employee.

The company can share its profit, after tax, amongst its shareholders as dividends. The director(s) are responsible for running the company and usually own shares, but are not personally responsible for any losses the business may make.

Setting up a limited company can offer tax benefits, protect your personal assets and create a more professional impression of the company.

If you’re unsure which format to choose, call us today on 01737 234567 for guidance and advice.