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Published on September 26th, 2014 | by admin

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Should I Be A Sole Trader Or Limited Company?

This is the conundrum facing many self-employed people who take the plunge to start their own business.

There are a number of implications to consider of becoming a sole trader or limited company relating to tax, legal and financial responsibilities. Deciding to go down the sole trader route means less formality and paper work at the outset to become a registered business.

However, choosing to go down the limited company route is often favoured over becoming a sole trader because business associated often will only engage in agreements with those who choose to operate in this way. So, whilst this might logically mean that going down the limited company road is the preferred option, it is important to appreciate that there are significantly more rules and regulations.

Not only that, but being a limited company also means incurring greater accountancy and auditing fees plus the penalties for making errors to paperwork in business books and forms are greater.

Choosing to be a sole trader means that there is no need to have a separate business bank account as all the debts of the business are the responsibility of only the individual. In contrast, the debts of a limited company belong to the company, which is a separate legal entity.

Operating as a limited company also means paying corporation tax whilst this isn’t such a requirement of a sole trader. However, overall choosing the limited liability route over becoming a sole trader does lead to tax savings for a fledging business owner. As a limited company it is not possible to withdraw money from the business without first formally recording it as a salary, dividend or loan.

Having looked at some of the major differences, it’s worth noting that whichever route is initially chosen, it is possible to change from sole trader to limited company and vice-versa at a later date.

To register as a sole trader, it is as simple as contacting HMRC and registering for self assessment. In contrast, to form a limited company, there is a requirement to register with Companies House and receive a certificate of incorporation.

 

 

 

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About the Author

patrick.maddison@vowretail.com'



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