Business Structure

Sole Trader

A Sole Trader is a business owner who is self employed. There is no distinction between the individual and the business and thus there is unlimited liability on the owner in terms of his personal assets such as their house, car and other assets. To be a Sole Trader / self empoyed you have to register with HMRC within 3 months.

Pros of setting up as a Sole Trader

• Much easier to set up and less annual admisnistration than a Limited Company Structure. Basically can start immediately, no need to register a company with Companies House etc.

• Sole traders are taxes as individuals through the self assessment return and are not required to complete corporation tax returns or file annual accounts and confirmation statements with Companies House.

• Sole Trader Income and Assets are not in the public domain unlike Limited Companies where the Accounts and Profits can be viewed via Companies House.

• Profits and earning are yours to keepa after Tax and there is no need to consult any other shareholders.

Cons of Setting up as a Sole Trader

• Taxation can be greater as a Sole Trader, especially where profits are high as you will pay Income Tax like and a normal employed individual taxed at the higher rate of 40% where as with a Limited Company you pay Corporation Tax of 19% on profits.

• As a Sole Trader you have to pay Tax on profits made during the Tax Year unlike a Limited Company where the company will pay Corporation Tax at 19% but you as Director or Shareholder will not pay Tax on Dividends until these are paid. So dividends can be with drawn either side of different Tax Years to reduce the tax paid.

• As a Sole Trader if the business starts to struggle and can't pay its debts, then the Sole Traders assets like houses, cars etc will be at risk.

Limited Company

A limited company is a distinct Legal Entity apart from its Directors and Share Holders and is set up via Companies House. E.g. Blue Lagoon Limited. Its liability is limited to is assets and thus the individual Directors and shareholders assets are protected should the business have Fianancial difficulty.

Pros of setting up as a Limited Company

• As a Limited Company there is Limited Liability and if the company starts to struggle and can't pay its debts, then the Directors and Shareholders loss is limited to the assets of the company. There personal assets are not affected (unlike Sole Traders).

• Limited Companies can be more tax efficient when profits start to rise and they pay corporation Tax at 19% and Directors will only pay Tax on dividends when they pay themsevles thus allowing amounts to be taxed at lower rates if split over different Tax Years.

• Limited companies are sometimes see as more secure and credible when it comes to raising funds or obtaining customers.

Cons of setting up as a Limited Company

• There are significant administrative tasks that need to be carried out like filling accounts and confirmation statements annually to Companies House, preparing and submitting Corporation Tax Returns to HMRC, Board Minutes, etc

• Your personal details and company income and assets will be in the public domain at Companies House.