Steer issue 23 June 2019 - Page 10

Whether you’re starting out in business, or you have
been running a business for a number of years, you need
to think about your trading status. Every business – no
matter how big or small – must have a legal structure.
There are various options to choose, however the majority
decide to be a sole trader or limited company - so what’s
the difference between the two? And which is the best fit
for your business?
What is a sole trader?
A sole trader is essentially a self-employed person who is
the sole owner of their business. It’s the simplest business
structure – which is probably why it’s the most popular –
and you can set up as one online with HMRC.
What is a limited company?
A limited company is a type of business structure that has
its own legal identity, separate from its owners (shareholders) and its managers (directors). This remains the case
even if it’s run by just one person, acting as shareholder
and director. The company has to be ‘formed’ with Companies House and will be included on the company register – details of which are available in the public domain.
Sole trader advantages
• Easy to set up and no real set up costs
• Relatively little paperwork other than an annual selfassessment tax return
• Greater privacy than a Limited Company as your details
are not available on public record
• You are free to withdraw cash from the business as you
please as all of the money is yours
• Lower priced accountancy fees
Sole trader disadvantages
• Sole traders have unlimited liability as they are not a
separate entity in UK law, therefore if the business gets
into debt the business owner is personally liable. As
such, if things go wrong sole traders could lose
personal assets, including your house. There are
insurances available to protect you against debts but it
is advisable to check the small print carefully
• Raising finance can sometimes be tricky and will be
based on your personal credit rating
• Less opportunities for tax planning
Limited company advantages
• As a company is a separate legal entity in most cases
your personal assets are protected – there are some
exceptions, for example if there is proof of fraud, but
on the whole a company director cannot easily be held
accountable for the company’s actions
• Running a business as a limited company looks more
impressive and professional as you simply look like a
bigger operation
• Once you have registered a company name nobody
else can use it, whereas sole traders aren’t offered the
same protection
• There is a wider range of allowances and taxdeductible costs that a limited company can claim
against its profits
• Broadly speaking limited companies stand to be more
tax efficient and there are more opportunities for tax
Limited company disadvantages
• There are set up costs involved, including paying to
form a limited company
• A company has to submit accounts to Companies
House each year which are available for viewing on
public record. In addition, you have to file accounts, a


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