Have you been toying with the idea of going it alone? Leaving your job and becoming your own boss? It is not as wild an idea as you may think. An increasing number of professionals are going down this route and it is easier than ever to do it, whichever way you choose to operate. This month we take a quick look at the pros and cons of the two main options to help guide you into making the right decision for you and your circumstances.
Sole traders
A sole trader is someone who is self-employed and is the sole owner of a business. As the simplest business structure available, it is hugely popular and easy to set up. All you need to do is register via the gov.uk website for tax purposes and you’re all set. The benefits to you as a sole trader, as opposed to a limited business are that:
- It is easy to set up
- It gives you greater privacy of accounts and activity
- Tax is calculated by a simple self-assessment tax return and tax is paid on the business’ profits
- Above a personal annual allowance of £11,500, three tax bands of 20%, 40%, or 45% will apply depending on your income
There are of course some disadvantages to becoming a sole trader, which include:
- You are personally liable for any debts and losses, and your personal assets may be affected as a result of these
- Unless you have professional insurance in place, you can be sued in the event of a legal dispute with a client or supplier and this could impact on your personal assets
Limited companies
On the other side of the coin, a limited company will also offer certain advantages and disadvantages. A limited company is one that is set up as a separate legal entity and is made up of shareholders (the owners) and directors (the managers of the business). A single person can be both the shareholder and director of a limited company. The benefits of setting up a limited company include:
- Greater tax efficiencies above certain thresholds, as you will only pay corporation tax on your profits. The range of allowances and deductible amounts against profits is also a little wider for limited companies than for sole traders
- Your personal assets are not exposed as a limited company can benefit from limited liability, so in the event of a dispute or loss you will only lose what you have put into the company
- Your registered name is yours and yours alone and no one else can use the same one for a similar business
The disadvantages will include:
- You have certain legal responsibilities as the owner and director of a company. In addition to an annual accounts return you will also be required to file an annual yearly return setting out how you met those responsibilities
- This comes with time and cost implications – you may need to hire an accountant and there are fees associated with setting up your new company
- Your company accounts are publicly available through Companies House
If you are unsure of which is the right option for you all you need to do is talk to one of the Bells Inc. Hamilton Stewart team. We are experienced and knowledgeable on all matters associated with running a business and the various tax implications, so just give us a call on 020 8763 1711 or email us at .
