- Looking to set up a new business?
- 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 the net, reading up on best practices, speaking to friends 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! Yes, 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.
Few things to remember
- 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
- You need to register with HMRC to submit a self-assessment
- You will need to remember this date 31 January – that is a deadline to submit your tax return and a deadline to pay your tax & NI
- The tax year is form 6 April to the 5 April the following year
- You will need to pay income tax on any profits above the tax free allowance
- You will need to pay your National Insurance Class 2 and Class 4 contributions
- Payments o taxes are once or twice a year depending on the amount you owe.
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… you as a person is liable, 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, then complete your final self assessment if the business stopped trading during the tax year. If your stopping trading is same as the tax year that is easy.
As a limited company you are no longer looked at as an incorporated business. 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.
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, HMRC accounts are due 12 after the end of the accounting year and Companis House allows 9 months for submission
- As a Director you will be responsible for the paperwork and the statutory obligations of delivering accounts on time
- Every director and shareholder will be expected to complete a self-assessment by 31st of January
- Your company’s details and some finances (Balance Sheet) 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.
If you require help with registering your Sole Trader or help with incorporating a limited company, we can help you with all of these and explain all your obligations.
Greenlight Accountancy Team 😊