Should You Be a Sole Trader or a Limited Business?

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.