Starting a new business can be daunting but extremely exciting. It is very important to make sure you are choosing the right structure for your start-up from the offset. Deciding whether you will be launching your business as a sole trader, partnership, or limited company can help to ensure that any tax-saving opportunities are fully explored. Selecting the correct structure will also protect you against any future risks with setting up a new venture.
At Maple Accountancy, we tailor our services to each client, providing them with all the tools they need to manage their finances effectively. To help you decide the right structure for your start-up, we have shared some key points that you should consider.
Sole Trader
The sole trader business structure is the most popular in the UK. In 2019, there were approximately 3.5 million sole traders in the UK, making up for 60% of small businesses. It is the simplest form of business, and for many, it is the most attractive option as it comes without any legal formalities.
When choosing a sole trader structure, there is no distinction between the assets belonging to the business and what belongs to the proprietor. This means that if you encounter any obstacles, although you might have complete control, personal assets may be at risk of being seized.
As a self-employed, sole trader it means you can run the business as you wish. You have more freedom when it comes to making big decisions for the future of the business in comparison to a partnership structure, for example. This is one of the main advantages for sole traders and one of the biggest reasons as to why people leave employment to start up their own business.
The tax rate for sole traders is based on individual income. Therefore, tax and national insurance are calculated on the total profits made in the tax year. A sole trader will be taxed on income, which is over the personal tax-free allowance of £12,500. Therefore, registering with the HMRC is important to complete a self-assessment tax return. Also, depending on your business, you may have lower start-up costs when choosing a sole trader structure.
Partnership
In the same way as a sole trader, each party of the partnership will be obligated to pay tax and national insurance on their share of the profits. It is also important that the partnership files a partnership tax return but does not pay tax in its own right. When choosing a partnership structure, individual tax and partnership tax returns are the only filing requirements, however more formal accounts may be required as part of the partnership agreement.
Limited Liability Partnership (LLP) is similar to a partnership and taxed in the same way. However, Limited Liability allows the partners to limit their risk by capping their liability at the maximum of their contribution into the LLP. This comes with an additional admin burden, as an LLP is required to file accounts with Companies House, which means there are higher compliance costs.
Limited Company
A limited company will incur additional filing requirements with Companies House. Additional finances will be required for statutory accounts and an annual statement is required to file a tax return with HMRC. When starting a limited company, you will likely be required to file an individual tax return as a director. The compliance costs for a company are, therefore, usually higher than other business structures such as sole traders and partnerships.
A limited company will be taxed at corporation tax rates. Tax contributions will be taken when an individual takes money out of the business, either through payroll or dividends. For certain individuals, this may be a tax-efficient structure, especially when used alongside other extraction methods such as interest and pensions. If you are considering this structure, then Maple Accountancy can help you register your Limited Company and help to manage your finances.
How can Maple Accountancy help?
At Maple Accountancy, we are a team of expert business advisors with over 30 years’ experience helping businesses from a wide range of sectors successfully grow and prosper. Whether you’re a small family-owned or owner-managed business, or a large nationwide business we can help provide expert, tailored advice and business development solutions.
We can work with you to create a clear, workable business plan and growth strategy for your business. We review the structure of your business, your pricing strategies, market positioning, and competitive pressures and prepare forecasts, financial projections, and set targets and KPI’s to effectively monitor your progress. We help you create a blueprint for success and translate this into action.
We understand choosing an accountant for your business can be a difficult decision, that’s why we offer a free, no-obligation consultation with a member of our team to help answer any of your questions and so you can see if we are the right fit for you and your business. If you need help and advice on choosing the right structure for your start-up or managing your business accounts, contact us today to arrange your free consultation 011 341 820 78 or email us at success@maple.uk.com.
