Before registering a company in the UK, you will need to consider which trading form suits your type of business. There are various aspects to take into account before you reach a final decision, including industry regulations and tax considerations.
The simplest way of setting up your business, especially if you aren’t planning on employing anyone, is as a sole trader. Effectively, you are the business and will take full responsibility for its operation, including facing legal action and liability for debts.
There are many benefits for sole traders. It’s relatively inexpensive to register and there’s no mounds of red tape to contend with. Likewise, you can withdraw money from the company as though it’s personally yours, as well as enjoying the freedom of being your own boss.
In terms of tax, you’re entitled to obtain relief for business expenses such as fuel costs, transport, computers and other necessary equipment. If you work from an office space at home, there’s also the chance to claim a deduction on utility bills and mortgage interest.
Registering as a limited company showcases a professional appearance and is favoured by business owners looking to expand their company, usually by employing additional staff or expanding their premises.
In legal terms, the business is a separate entity so the owners (shareholders) won’t be held personally accountable for debts or other liability claims. In terms of documentation, more is required in terms of ongoing paperwork and legal duties. A limited company also requires its own tax registration.
The company can offset expenses that are incurred by the business for the purposes of trade. Other tax advantages vary, whilst there are no NICs required on company profits.
An LLP, or limited liability partnership, is a setup where some or all of the partners each have restricted liabilities in the company. For traditional partnerships, such as solicitors and dentists, it is often preferred for the increased financial protection it offers.
Like a limited company, LLPs have to be registered at Companies House and are required to have at least two members at all times. They aren’t compelled by law to pay corporation tax and each member must complete a self-assessment return instead.
For companies that have a relatively small number of members who contribute similar amounts, it makes sense to register as an LLP. However, agreements regarding each member’s liability should be decided before the business is operational to avoid disputes.
Choosing the right business structure for your start-up company requires much deliberation and perhaps the guidance of a professional accountant. They’ll assess your company objectives and recommend the most effective structure to streamline tax payments and help the business grow.