What route is right for me?
When starting a business, one of the decisions you'll need to make is whether to operate as a sole trader or a limited company.
The best route for you will depend on you personal circumstances, we've summarised the key points to consider in the table below:
| Sole Trader | Ltd Company | |
|
Tax Efficiency |
Income tax, which can range between 20-45%, as well as Class 2 and Class 4 National Insurance contributions are deducted against all profits/losses regardless of what is drawn from the business account |
Profits are subject to corporation tax (currently 25%) and shareholders can receive dividends which are taxed more favourably than income. There are a wider range of allowances and expenses that can be claimed |
| Liability | Personally responsible for any debts or legal claims against the business |
Legally separate from shareholders/directors, no personal liability for any losses made by the business |
| Agency Contracts | Agencies will not work with sole traders due to onshore intermediaries legislation, payments can only be made to a limited company (PSC or Umbrella) | The preferred route for those contracting outside IR35 through a recruitment agency |
| Financial Reporting | In terms of HMRC submissions only a self-assessment is needed | There is more involved as annual accounts need to be filed along with VAT returns and self-assessment, all of which would be completed by your Nasa accountant. |
| Legal Structure | A sole trader is a self-employed individual who operates their business as an individual | A limited company is a separate legal entity that is owned by its shareholders |
| Funding | Raising business finance can be difficult as lenders/investors tend to favour ltd companies which could result in slower growth | Finance lenders/investors favour ltd companies as they have more legal protection and tax benefits |
| Credibility | Some organisations choose not to work with sole traders due to lack of legal protection compared to ltd companies | Often perceived as more professional and credible, encouraging more confidence amongst suppliers and customers |
| Company Name | The business name is not legally protected, allowing anyone to operate under the same name. This lack of protection can sometimes lead to confusion among customers. | Business name is protected |
Ultimately, the decision to operate as a sole trader or a limited company will depend on your individual circumstances and preferences. It's important to consider the legal and tax implications of each option.
Get in touch to find out more:
📞 01179 297 683 - Option 1
📝 Register with Nasa Consulting