Sole Trader or Limited Company?

Sole Trader or Limited Company?

Are you starting up a new business and do you need some help deciding whether you should set up as a sole trader or a limited company?
Are you starting up a new business and do you need some help deciding whether you should set up as a sole trader or a limited company?
If the answer is yes, then this article is written for you.
Sole Traders
Sole traders are self-employed and solely set up their businesses on their own. It is the simplest business structure to opt for and it is the most popular.
Benefits of Being a Sole Trader
• you must register as a sole trader with HM Revenue & Customs, but it is a much easier process then setting up as a limited company.
• you do not have to file your accounts with Companies House, and you do not have to submit a Corporation Tax Return
• you have more privacy because the general public cannot search for your company and see your accounts.
• you complete your accounts for the year and then annually complete a self-assessment tax return.
• if you decide you need an accountant fees are usually lower.
Drawbacks of Being a Sole Trader
• a sole trader is wholly responsible for the tax on the profits of the business and any losses that are made.
• there is no distinction between you and your business, so you are personally liable to pay any debts from either your business or from your personal assets.
• you may find it is more difficult to hire and retain high caliber employees.
• your are likely to find it more difficult to raise capital to fund your business growth because banks and investors prefer limited companies.
• sole traders usually pay more tax than limited companies.
Limited Companies
These are private companies whereby the owner is only legally responsible for the debts of the business to the degree of the capital that they invest in it.
Benefits of Being a Limited Company
• owners of a limited company that operate in a tax efficient way may have lower tax bills due to the combination of corporation tax and personal income tax from a company salary and after tax profits withdrawn as dividends.
• banks and other lenders are more likely to issue loans to finance your growth plans because limited companies are sometimes seen as being more professional and to be in business for the long term.
• you are more likely to attract and retain high caliber employees.
• if you are doing business with larger companies they usually prefer or in some cases will only work with limited companies.
• the name of your business is protected by law once you have registered with Companies House. No-one else can trade under the same name as you.
Drawbacks of Being a Limited Company
• as well as completing the annual self-assessment return for any personal drawings from your limited company, you also must file annual accounts in a very specific format with Companies House. Plus, on top of that you must complete a corporation tax return and an annual confirmation statement.
• accountancy fees will be higher but remember you are operating from a more tax efficient business structure which will allow you to easily recover these costs. Obtaining some good advice in the early days should be considered essential in order to maximize your savings in tax payable.
Tips for All New Business Owners
• visit the website to register your business
• care needs to be taken early on, to ensure a system is put into place to capture funds, so you can pay your taxes on time.
• be fully aware of your reporting deadlines and requirements to pay your taxes.
• keep good records of all your income and expenditure
• always keep invoices and receipts to support the numbers in your accounts.
• save all your documents for 7 years in case you are randomly selected for a HMRC audit.
• NEVER leave everything until the last minute. If you do, you are very likely to pay more tax and accountancy catch up fees if you are unable to resolve any issues yourself.
• Remember HMRC will levy penalties and interests on late submission and payments.
If you would like any further advice or information regarding anything in this article, then please contact:
Tracy Wayte
Complete the contact us information boxes on our website
or send us an email to
or you can call us on telephone number 01283 819385
Some of the services we can provide to help you:
• set up your sole trader business or limited company
• set up your accountancy software
• prepare your accounts
• provide regular updates with an estimate of taxes currently due
• communicate with HMRC on your behalf
• submission of all your accounts and taxes to HMRC

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