22 Oct Should You Be Self-Employed or a Limited Company?
Following on from my previous post, you should now have a clear idea of what you want to do, and you should also have a name for your new business.
So now what do you do? The next thing you need to decide is if you want to register as a limited company or as a sole trader (self-employed).
Registering as a Sole Trader
Starting your business as a sole trader is definitely the easiest option. You don’t need a registered office address, you don’t need to complete Corporation Tax Returns and you don’t have to worry about filing documents when a new Director is appointed or dismissed.
Aside from making sure that you’re VAT compliant (you only need to register for VAT if you’re making over £83000 per year), you just have to let HMRC know that you are self-employed within 3 months of starting trading and you have to do annual tax returns before 31st January each year. Make sure you keep all of your invoices, bills and receipts!
Another advantage of being a Sole Traders is that you can simply take money out of the business as and when it’s needed which will be recorded as a salary on your tax return. This is much simpler than when you are the Director of a limited company. Always make sure that you have a clear idea of your cash flow though to make sure you don’t fall short when any tax liability is due!
A major downside of being self-employed is that you are personally responsible for any outstanding debts if your business fails. It is advisable to ensure that you have adequate insurance to cover this if this is the route you choose to take.
Registering as a Limited Company
A limited company is a little more difficult to set up, and it comes with its own set of rules and regulations. You must appoint Directors, register with Companies House and complete company accounts as well as your annual return. You also need to start accounting for Corporation Tax.
It does have its advantages though. It can bring tax savings, as you are able to take a dividend instead of just taking company income as described above. It can also change the way your clients look at you. A limited company sounds like a bigger organisation and you can introduce yourself as a Director which may help when speaking to certain clients.
One of the biggest advantages of being a limited company is that there is limited liability. As a sole-trader, you are responsible for any debts of your business as you are the business. As the Director of a limited company, with the exception of fraud, you are not personally liable. A limited company can therefore give you added protection should things go wrong.
If you need any advice, please get in touch. Otherwise, please click on either of the buttons below to register as self-employed or as a limited company.