Business Structures
Now you have decided that you want to go down the self-employment route and be your own boss, you need to decide on which business structure is best suited for you and your circumstances. What may suit your colleague may not suit you. Unless you know exactly what you want, and understand every business structure available, then this can be a very difficult minefield to negotiate. It may seem that the list is endless, and making the wrong decisions at the start can have significant consequences in the future.
the cps group can advise you of the decisions you need to make and help you make the right choices.
Sole Trade
The simplest way to start up a business is as a sole trader. You don’t have to fill out form after form to start trading as a sole trader, all which is required is that you file an annual self-assessment tax return and keep records of your business income and expenses. If operating through your sole trader you will have complete control over your business and all profits after tax will go to you. However if you operate as a sole trader there is no security net in place, which means any business debts will become part of your personal affairs and you become legally liable to pay off this debt– eek!
Many clients/agencies cannot deal with sole traders as they can only deal with UK registered companies who are a legal entity. Please bear this in mind when making your decision.
Limited Company
A legal business structure will allow you to keep your business separate from your personal affairs. Having a corporate feel will also make your limited company appear to be more professional to customers and suppliers that you work with. However, running a business will also increase your administrative burdens as you will, for example, have to file your personal tax returns as well as those for the company.
Operating through your own limited company means that you will have to follow stringent rules and regulations set out by both HMRC and Companies House.
Your limited company is a separate legal entity and only the company itself is liable for its debts. This rule applies to profit gained too – it belongs to the company. If you want to take money out from the company profit then, you must either pay yourself a salary as the employee or a dividend as a shareholder. This is great when you are operating through your own limited company as being paid this way will help to minimise your tax and National Insurance Contributions liability.
