Make Sense | The Correct Legal Structure
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What are the considerations when choosing to be limited or a sole trader

Limited Company or Sole Trader?

  • Ltd company: separate legal entity so no personal liability. Accounts are submitted to HMRC / Companies House.
  • Sole Trader: you are the business, declare business on self-assessment and you are responsible for business debts.
  • Partnership and registered: similar to Sole Trader but for two people.

What are the main considerations?

  • Set up: easier and cheaper as Sole Trader. More complex for Ltd but more rewarding in regards to tax savings. (See Limited company registration for more details).
  • Accounts: Simpler as a Sole Trader
  • Net profit (Turnover – Outgoings): over about £25,000 more tax efficient as a Ltd company
  • Risk: do you want to be liable or do you want personal assets protected from business activities?
  • Prestige: some clients and suppliers prefer to deal with Ltd companies
  • Raising Capital: it may be harder to raise funds as a Sole Trader and the funds will be lent to you and not the company
  • Exit strategy: it may be harder to sell sole trader company

Ltd Company Formation Guidance

You can register your company through an accountant or online with Companies House.

You will need the following information:

  • Company Name
  • Registered and Trading Address
  • Directors and Shareholders Percentages and Details

Company Name

Here are the main considerations for choosing a company name;

  • You cannot have the same name as another company. You can check the names here.
  • You must have the letters Ltd or the word Limited after the company name.
  • Certain words are not allowed or you need permission.
  • Avoid using your name i.e. John Smith Ltd as it looks unprofessional and may flag you up for IR35 investigation with HMRC.

Registered Office

Most people use their accountant’s office address so that their home address is not on the public register that anyone can access.

Directors and Shareholders

  • Directors of Ltd companies must ensure that company meets its legal obligations and filing dates.
  • Shareholders can be anyone who own shares in the company.
  • Both can be used for tax planning purposes. For example, adding your spouse to receive dividends or children over 18 years can receive dividends and this could be used to pay their way through higher education.

Before registering a company, you should have proper advice from your accountant, book-keeper or solicitor. If you do not have one, we’ll be happy to discuss the best way forward for you.

Registering as a Sole Trader

You will need to register your new business with HMRC. There are different registration forms to complete depending on whether or not you have filed a self-assessment previously. To register your new business, click on the image links most relevant to you.

It is easier and quicker to submit online but if you prefer, you can complete a paper version and post it to HMRC.

Names

You do not have to register with Companies House but still have to follow the rules. Click here for more details.

For more information contact us on

0121 356 2746