With 3.5 million sole traders in the UK and 2 million limited companies, these are the most common types. Sole traders may be a popular structure but incorporating your company could make it more efficient and save you money.
With the financial strain this pandemic has brought many, it’s important you get it right, which is why we are here to help decide the best fit for you. Here we will explore the ins and outs of each legal structure.
A sole trader is essentially a self-employed person who is the sole owner of their business where as a limited company is a business structure that has its own legal identity, separate from its owners and directors.
Perhaps the greatest benefit of owning a limited company is that you have limited liability. You and your business are separate in the eyes of the law, any debts you may rack up or legal disputes you find your company in, are matters for your business and you cannot be personally liable.
Whereas sole traders have unlimited liability, and you will be responsible for your business financially and legally. Viewed as one entity by UK law, if your business were to fall into debt you’d be personally liable and may lose some of your personal assets if things go wrong.
However, setting up as a sole trade is relatively easy and is the simplest business structure there is, which is probably why it’s so popular. There’s little paperwork other than the annual self-assessment tax return.
Limited companies are a little more complicated to set up with added paperwork. You need to come up with a unique name and register with Companies House, where everyone can see information about your company. You also need to pay a small fee to incorporate.
A limited company, because of its limited liability can often be seen as a better company to work with. Contractors and clients are more likely to gravitate towards a limited company as it is seen as a more professional model than a sole trader. Not to mention, that this view is also shared by banks and investors who are more likely to financially support a limited company.
Another very important advantage for a limited company is that you stand to be more tax efficient. Rather than paying income tax on your profits, like sole traders, you pay corporation tax. This is a lower tax rate thus; your company can be more profitable.
This is why on most occasions we recommend a limited company, but every business is different. It’s important to weigh up your options to see what suits your company best. The legal structure you use can impact everything you do, so why not ask a professional? Our experts can tailor advice for you and guide you through the whole process.
Simply give us a call on 0161 341 0368 or email firstname.lastname@example.org.
If you have any questions about our services then please do not hesitate to get in touch with our friendly team! You can call Lesley Kay on 0161 341 0368.