Thinking of starting a new business?

July 17, 2018

You’ve researched your market, prepared a business plan and organised your finances; the next step is to discuss the right business structure. Don’t assume you will be better off operating as a company, this involves additional administration, costs and more layers of taxation. Consider all the options

If you want to captain your own ship, become a Sole Trader. If two or more individuals are keen to run a business together, consider a Partnership. Either way, post-tax profits generated are yours to keep. Both Sole Traders and Partners are personally liable for the business debts but operating a ‘Limited Liability’ Partnership (LLP) will enable Partners to restrict their liability to broadly capital contributed. Sole Traders and Partners are self-employed. They must register with HMRC for Self-Assessment and pay Income Tax and National Insurance. A ‘nominated partner’ must also register the Partnership and file its Tax Returns.
Directors of Limited Companies face increased reporting and management responsibilities.

A company has a separate legal entity and a shareholder’s liability is normally limited to the amount unpaid on their shares; although often lenders require personal guarantees. During its life, there are different layers of tax:

  • Corporation Tax payable by the Company on income and capital profits at 19%
  • Income Tax on money withdrawn, for personal use, as salary and dividends 
  • Tax on liquidation

Whichever business structure you chose, you’ll need to keep meticulous records of business income and expenses. You must register for VAT if turnover exceeds £85,000 and operate a PAYE scheme for all directors and employees.

Tax relief for loss-making Sole Traders and Partnerships in early years of trading can aid cash flow prior to incorporation although commercial requirements and personal objectives will often determine your business structure.

Call our business services team  to discuss your options on 01223 810100.

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