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Article

Should I Set Up as a Sole Trader or a Limited Company

Every business needs to choose a legal structure when first starting out. This isn't something that will define your whole working career, and changes can be made down the line. However for the short term, deciding on the correct structure will determine how you run your business. 

What is a Sole Trader

A sole trader is a self employed person that is solely responsible for their business. It is the simplest and most popular form of business structure in the UK. It is very easy to set up (see more info at GOV.UK). A sole trader is responsible for keeping track of the business turnover and costs, and reporting this in a self assessment tax form.

A sole trader is responsible for the business in its entirety, the benefits of limited liability (covered further in next section) do not apply - meaning if the business incurs debt, the sole trader will be responsible even at the loss of personal assets. However this form of business is usually smaller and so often is not open to the same level of risks. 

As a sole trader, the businesses profit is the sole traders income, and tax is paid on this amount. 

Partnerships

A partnership operates in a very similar way to a sole trader, but differs in that there can be multiple people owning the business. All partners will own a different percentage of the profits, its best practice to determine this before the business starts trading (and have it in writing!). 

Each partners percentage of the profit is classified as that partners income, and tax will be paid on this amount. 

 

What is a Limited Company

A limited company is a form of business structure that unlike a sole trader, is separate to its owners. Even if run by just one person, a limited company has the legal distinction between the owner and the business. 

the word 'limited' applies to the liability. With this form of business, the owner only risks what is in the business, personal assets are not in danger should the business incur losses. 

A limited company is more difficult to set up, requires a greater amount of administration and paperwork, including more detailed accounts.

The benefits of this type of business structure are that broadly speaking, limited companies are more tax efficient. There are a greater number of tax deductible costs & allowances. 

 

Making the Decision

If you are just setting up a Window Cleaning business, deciding which type of structure can be difficult. If you find yourself stuck, head over to the business section of the gov.uk website for more information. 

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