Sole trader, partnership, LLP or limited company? - sponsored section; Deloitte offer advice on choosing a structure for your business - sponsored section.
Byline: Angela Upex
Taking the plunge and setting up your own business can be a daunting prospect. You may think that you have made the most important decisions already -- your product / service, business name, location, funding etc. but before you actually start your trade, careful consideration should be given to the structure of your business.
This will determine your reporting requirements (to HM Revenue & Customs ("HMRC") and the Registrar of Companies), the manner in which you extract profits from your business, your personal liabilities and responsibilities and, importantly, the rate of tax that is paid on your business profits. You should note that the decision you make is not irreversible but getting things right from the outset could save you time and money in the future.
We have outlined below a general overview of the most common business structures, each coming with its own merits and disadvantages. This is not intended to be comprehensive, and the unique circumstances of each case mean that advice should be sought to help you determine which model is right for you. Sole Trader
Sole traders are self-employed individuals who run their business in their own name (or business name).
The new business should be registered with HM Revenue & Customs as soon as possible, and no later than 5th October after the end of the tax year of commencement. For example, if trade starts between 6 April 2015 and 5 April 2016, HMRC must be notified by 5 October 2016.
A separate bank account should be set up to account for business income and expenses, and it will be your responsibility for keeping record of these figures and reporting them to HMRC (on a self-assessment tax return).
Self-Assessment tax returns are required for each tax year of business, and the income and expenses detailed on the form will determine any Income Tax and National Insurance contribution ("NIC") liabilities.
Tax and NIC charges are payable on the business profit at up to 47%. This is regardless of whether or not funds have been transferred from your business bank account into your personal account, as you and the business are regarded as the same legal entity.
The sole trader arrangement is the most frequently used business structure due to its ease of registration and administration. However, it is not always the most tax-efficient, and more significantly, as the sole trader and the business are regarded as the same legal entity, the individual bears full legal...
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