One big decision for any new start-up is whether to register the business as a sole trader or limited company? It is a common question that many new business owners will face, and this article breaks down the two options for you.
What are the differences?
Registering as a sole trader means that you have complete control of the business whether you employ others or not, you will also keep all the profits after tax. Instead of paying corporation tax and paying yourself a salary the profits you make are your salary – you will of course have to pay tax just as you would on any other income.
A limited company on the other hand means that you will be registering a business name that you will work for, and in this case, earn a salary from. Any profits you make belong to the company and will either come in as a salary, dividends, or loan.
Which one is best for me?
Your business goals and strategies will determine which option you decide to take. If for example you are making your own products and selling them at markets or online via websites such as Etsy or Ebay, but you have another job then registering as a sole trader would be the most beneficial.
It is quick and simple to do, and it is also tax-friendly which is important for you to make a profit and a success of the business. A sole trader is perfect if you are just starting out. Depending on your future success you can register as a limited company later down the line.
How do I register?
Registering as a sole trader needs to be done before the end of the tax year and before October 5th where you need to submit a tax return. Remember, there is a certain amount you can earn before HMRC will expect you to pay tax – this is called a trading allowance.
If you are earning above this allowance, then you need to complete a self-assessment tax return which can be done by registering online or by posting the relevant information to HMRC which you can download from the official HMRC website.
Registering your business as a limited company is usually done via Companies House and you have the option to purchase a ready-made company name, or you can form your own company. You also need to appoint a company director who must be over 16 years old and cannot have been bankrupt or disqualified from directing a previous company.
Speak to the experts
If you are starting a new business and need some advice on whether to register as a sole trader or limited company then our team of highly trained business consultants can help you with all aspects of your small business. If you would like to know more about how we can help you why not get in touch with the friendly team here?