Limited Company Vs Sole trader
This is an important decision for all business owners to choose a legal structure. However understanding the difference between being a sole trader and a limited company, can be challenging and confusing.
Operating your business as a limited Company has numerous advantages, but it all relies on your circumstances, business objectives, and financial goals.
Furthermore, being a sole trader may appeal to you because it provides you with more freedom in terms of personal obligation to people in your firm, but this independence comes with drawbacks.
The key difference is a sole trader is responsible for both personal and corporate debts. This means putting personal assets at risk if business doesn't make any profit. In contrast, the finances of a limited company are separate from the Director's personal finances. So they are only liable for the money they put into the company.
However, if profits is below £20,000 then there really isn’t much of a difference between a sole trader and a limited company in terms of taxation.
Below is the compare and contrast of Sole Trader and Limited company, for information purpose only.
Item
Tax registration
Flexibility
Online Privacy
Tax filling
Tax Efficient
Start immediately
Accountant Requirement
Sole Trader
As a sole trader you need to registered Self assessment on and before 31 Oct.
VAT: Businesses have to register for VAT if their VAT taxable turnover is more than £85,000.
Payroll: You only need to enrol separately for HM Revenue and Customs’ (HMRC) PAYE Online service.
If your business didn't work as planned you can easily wrap up the business and move on to the next adventure.
Your name and details are not in the public domain unlike with limited companies.
Filing deadline for the Tax return as a sole trader is 31st January, every year.
A sole trader pays 20 -45% income tax. Further, there are two National Insurance Contributions on the shoulders of Sole Traders
No requirement to register with Companies House and you can start your business from any day, as you planned.
It is advisable to hire a professional to look after you company's tax matter, if you have limited knowledge or ambiguity about the taxes.
Need help or still have a question? email
info@camberleyaccountants.co.uk
Limited Company
The business needs to be registered at Companies House and HMRC.
VAT: Businesses have to register for VAT if their VAT taxable turnover is more than £85,000.
Payroll: You only need to enrol separately for HM Revenue and Customs’ (HMRC) PAYE Online service.
Proper procedure to follow of Companies house and HMRC to wrap up your business.
Your company details will be publicly available on the companies house website.
It is advisable to hire a professional to look after you Accounts and tax matters because filing dates at Companies House and other taxes are vary from company to company.
Limited company is considered more tax efficient.
Corporation tax is 19% for a limited company.
Company needs to be registered with Companies house and HMRC for tax purpose.
It is advisable to hire a professional to look after you company's tax matter, if you have limited knowledge or ambiguity about the taxes.