Disclaimer: please note that business/tax matters can change, and that articles on this blog do not constitute financial, legal or any other advice. Always conduct your own research and seek independent professional advice where required. By using this website, you agree that any use of the information contained on it is at your own risk.

When starting a business, there are a lot of big decisions to think about: what are you going to call it? Will you trade online or have a physical presence? And what colours are you going to pick for your logo…?

One decision that may seem less exciting – but is nonetheless important – is what type of structure to go for. Are you planning to be a sole trader or limited company – and do you know the differences between them? (I’m focusing on these options for now as they’re two of the most popular, but there are other possibilities as well, such as an ordinary partnership, limited partnership or limited liability partnership. For more info on these, see here.)

Your chosen structure will have tax implications, and what suits you best can depend on your specific business, the anticipated turnover, your individual circumstances and your personal assets. You can speak to your accountant and find more helpful information on the Gov.uk website. In the meantime, here are a few points to consider:

Remember to register

When starting a business, whatever business structure you go for, there will be some sort of registration process. A sole trader would have to register for Self Assessment, for example, while you’d need to register a limited company with Companies House and for Corporation Tax, among other obligations (company directors can check whether they also need to register for Self Assessment here). Setting up and running a limited company will typically mean more paperwork.

In both cases, you’ll need to register for VAT once your VAT taxable turnover for the past year is going to exceed the threshold (currently £90,000 in April 2024), though you can also do so voluntarily if you wish.

Limited liability

As a sole trader, you and your business are considered to be one and the same – if you were successfully sued, for example, you would be personally liable for any debts. A limited company, on the other hand, is legally separate from you – and, importantly, your personal assets.

Public domain vs greater privacy

Some structures, such as a limited company, require you to register with Companies House, and certain information must be on the public record. This means that things like your registered office address and annual accounts are available to view online.

A sole trader will file a Self Assessment tax return each year with HMRC, but your accounts won’t be made public. 

Some entrepreneurs prefer to keep their business affairs more private, while others believe that a limited company may be perceived as more transparent and credible, especially if you’re planning to seek funding.

Employing staff

Contrary to popular belief, a sole trader doesn’t have to be a one-man band (or one-woman band; we’re not sexist) – you can still take on employees as your business grows. Whatever your structure, if you hire staff you’ll need to register as an employer and for PAYE, get Employers’ Liability insurance and look into things like pensions. 

Making your exit

Generally speaking, if you decide to sell part or all of the business at a later date (for example, as part of a planned exit strategy or because you want to retire), it will likely be more straightforward as a limited company. However, this leads me to my next point…

It’s not set in stone

Many self-employed people start off as a sole trader, as this is simpler to set up, but you might decide down the line that you want to change the structure. This is possible – however, it’s worth discussing the best way to do this with your accountant first, as there may be tax consequences (for example, when transferring assets into a limited company). 

As you can see…

there’s a lot to consider when starting a new business – not to mention the fact that tax rates and rules can change – so it’s entirely understandable if you’re feeling somewhat daunted.

The good news is that you don’t have to struggle along on your own. As well as being a seasoned business consultant, I’m also a chartered accountant, so it’s fair to say I know a thing or two about finance. And tax. And Love Island (but that’s a different story).

To find out more about working with me, get in touch today!