Should You Be a Sole Trader or a Limited Business?

should I be a sole trader or limited company

When staring up your new business venture, asking yourself ‘should I be a sole trader or limited company?” is a very important question. Determining where your business stands in legal terms, the kind of tax that applies to it and what your responsibilities are regarding record-keeping and reporting are all important parts to consider.

There are several structures to look at, each with advantages and disadvantages to weigh your options. Let’s take a look at both.

Sole Trader or Limited – Which is Ideal?

Choosing to operate as a sole trader or a limited company is not necessarily an easy decision to make. There are considerations around the plans for your business and the tax implications of making that choice.

Whilst you can change the structure of an existing business as they get bigger and more complex, it is still best to have everything to plan in choosing the ideal structure from the get-go.

Sole Trading

Working as a sole trader is a simple business structure where all you need to do is start trading and your business and personal finances remain the same, entitling you to all of the profits your business makes as your income. This makes admin easy as doing your self-assessment each year and paying your tax. This means you can either keep your records or hire bookkeeping services to help you which can be claimed as a business expense.

The downside is that you will not have any protection on the business’s financial side, as you will be fully responsible for any debts your business builds and face the loss of personal assets or reaching a state of bankruptcy if things go badly wrong.

Limited Company

Filing as a limited company does provide an advantage as you do have a legal separation from your business. As a limited company operates as a separate entity legally, it has its income and debts. As HMRC do not see you as your company, even if you are the only person working within it, you will be classed as an owner and employee.

This protects you personally if your company faces financial difficulty, with less risk of you losing your home or possessions in a worst-case scenario. The main disadvantage lies in the larger complexity around a limited company, and its required admin is a big part of it.

There is a lot more responsibility around learning how a business is run, and an added responsibility on keeping your various records and accounts in order – which can be a full-time job in itself. Most limited companies use bookkeeping services in Manchester to help keep their books and accounts running smoothly so that they can focus on growing the business.

For information on keeping your books and accounts for sole traders and limited companies, contact the team at Pebbles Bookkeeping today.

What our clients say…

“We have now been working alongside you with various clients. In some cases, we have introduced you to our clients and in other cases you have worked as part of our team. Every time we have brought you in you have done a great job. We now see you as an extended part of our team. You have proved to be professional, flexible and above all competent in getting the work done. We would not have any hesitation in recommending you again, and we look forward to working with you more in the future.”

Steve Price, BWP Inspire

“In bringing Pebbles onboard, it has made me wonder why we decided to try and do our own bookkeeping at all. Pebbles came in and sorted 18 months worth of mess we had unwittingly created, and we cannot be more grateful. I wish I had been told about them years ago and I hope every business out there struggling would give them a call to fully see the benefits they are missing out on.”

Sarah Rekia, Site Welfare

Pebbles Bookkeeping took over our bookkeeping when a full-time member of staff left the business.  Our accounts are relatively complex for a business our size because of the number of different suppliers and products we deal with, but Pebbles were able to get quickly up to speed.  We have significantly reduced our costs spent on bookkeeping activity as a result. They have also helped us move to a new accounting system (Xero), which we are already seeing the benefit of, and we’re looking forward to working with Pebbles in the future to automate more of our back-office processes.

James Balderstone, Lucid Networks

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