Best Option

Find the right accountancy solution for your requirements

One of the key questions many businesses ask themselves is whether to work as a sole trader or trade through their own limited company.

Whilst there are numerous benefits to going limited, many businesses choose the sole trader option. This is primarily because although going limited might be more financially rewarding, with lower taxes and more tax planning opportunities, they think there will be far more administration and legal commitments by going limited.

Without a doubt, as accountants the most common question we get asked is ‘should I go limited?’ but the reality is that there is no easy answer. Everyone’s situation is different and what’s right for one person might not be right for another. As well as the obvious issues of tax and national insurance contributions, there are many other factors which might influence your decision, for example:

  • What your turnover is and how much profit you make
  • Your future plans to grow the business
  • What level of commercial risk you will be exposed to
  • Whether customer perception matters
  • What plans you have, or would like, for pensions and retirement
  • Would you like to sell your business in the future
  • Do you have the time to manage a limited company
  • Reducing your tax bill vs extra time working on and not in your business

So, there are lots of things to think about, and most important of all is your own personal preference. You might want the simplicity of being a sole trader rather than a limited company, or you might prefer the security of having ‘limited liability’. In order to make that decision you must have all the information at your fingertips, which is where Easy Accountancy can help.

Advantages and disadvantages

As with all major business decisions, there are pros and cons to each option. Here are some of the key advantages and disadvantages of trading as a sole trader, rather than through a limited company:

Sole trader / self employed – a’ life more simple’ and an easy way to start in business

  • No set up costs
  • No limited company formation fees
  • Less government departments to liaise with
  • Just submit a tax return once a year
  • The usual route most people take when just starting out
  • Higher personal risk – you will be personally responsible for the company’s debts, so your personal assets can be at risk
  • Less opportunities for tax planning

Limited company – a life ‘slightly more complicated’, but necessary for some!

  • Some customers, usually PLCs or larger limited companies, will only work with other limited companies which may mean you have to go limited
  • More costly starting up as you will have to pay to form a Limited company
  • You have to file your accounts at Companies House each year, which will be on public record
  • You also have to file accounts, company tax and corporation tax calculations with HM Revenue and Customs every year
  • Accountancy fees are generally more expensive
  • You are separate from the company, so your personal possessions may not be at risk, unlike if you’re self employed
  • You may appear to be a little more professional
  • Better tax planning opportunities

Another option to consider is continuing as a Sole Trader, but engaging the services of an Umbrella Company.  This provides the same tax benefits as a Sole Trader but removes a lot of the administrative tasks associated with running your own business.  You may find our guide on Sole Trader or Umbrella Company an interesting read if this is something which appeals to you.

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