What type of business is right for you?
Posted on 31st January 2020 at 16:53
Setting up a New Business?
Looking to form a new company?
Unsure what direction to take your company?
Thinking of moving an existing business forward into a Ltd company?
No matter which of the above applies to you, you no doubt will have spent countless hours, researching legislations, reading up on best practices, writing to do lists and trying to prioritise them and scrolling HMRC pages, to understand what it is exactly that you need to do.
There is a lot to consider when starting a business and once you have written up your business plan and started setting things in motion, it’s easy to get swept along in the process, without truly understanding each advancing step.
So we thought we would help you out! Yep, that’s just the type of people we are!
It is really important to consider the type of business you are. Although there are several options, this blog is focusing on the main two types, Sole Trader and Limited Company.
If you would like to look into any other alternatives, such as Overseas or Social Enterprise, or if you are still in the earlier stages of writing up a business plan, we highly recommend you read through the advice on https://www.gov.uk/set-up-business
As a sole trader you are Self-Employed and not portraying yourself as a company. You can trade under your own name, or you can choose another name for your business. You do not need to register your name.
You must include your name and business name (if you have one) on official paperwork, for example invoices and letters.
You need to keep track of your finances; sales and expenses and register to submit a self-assessment yearly by the 31st of January.
You will need to pay income tax on any profits and pay your National Insurance Class 2 and Class 4 contributions. HMRC have a calculator to help you budget accordingly.
What does it mean for you?
• Quick and easy to set up – You don’t need to register with Company’s House and the business can always be transferred to a limited company if you wanted to
• Simple to run with minimal paperwork and fewer legal requirements
• Receive all profit – As you are not registered as a limited company you don’t have to pay corporation tax
• Your company’s finances are not listed on Company’s House offering you a more private approach to business – a drawback of this can be that larger companies may be reluctant to work with you.
• You have full personal liability over your company – if your company suffers a loss, raises debt, ensues customer complaints etc… the onus is on you as a person, this can put at risk things like your home and personal finances.
• If you choose to discontinue working as a sole trader, once you have tied up any work your end, i.e. paid/chased invoices, completed your working obligations, submitted your final self-assessment, you can simply inform HMRC you are no longer trading and that’s pretty much it.
As a limited company you are no longer looked at as self employed but as a company. You will need to choose a name for your business that has not been registered before, you can check on Company’s House to make sure the name you want is not in use.
As a limited company you will have a professional status as a director. You will have to register your business with Companies House, this will give you the following benefits and possible draw backs depending on what you envisage for your company.
Registering with Companies house
What does having a limited company mean for you?
• Your company will have a full legal structure allowing the business to exist in its own right, you are a separate entity and any repercussions will be brought against the company not you as a person.
• Your company name will be protected, no other business will be able to trade as you.
• You will have to pay corporation tax yearly on the profit that you have made, you will need to keep your books up to date and hold onto any paperwork with regard to finance for your business. Your first Company year-end will be due a full year after you have set up your business, they allow you 9 months from this date to complete and submit.
• Every director and shareholder will be expected to complete a self-assessment by 31st of Jan
• Your company’s details and finances will be public for anyone to see, through Company’s House.
• It can be complicated to set up and you are tied by more legislations than a sole trader. Luckily though, Salter and Weare excel in implementing Company Formations and can go through the whole process with you.
Tagged as: #soletrader #limitedcompany #salterandweare
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