The most frequent question I get asked is should I be a limited company or sole trader?
Sole trader advantages:
• Company performance is kept private
• Easy to set up
• Simple taxation rules and annual reporting
Sole trader disadvantages
• There is unlimited liability so you are personally responsible – you could lose personal assets if things go wrong
• Raising finance and borrowing money can be difficult meaning expansion opportunities may be harder
• Higher tax rate for sole traders and based on the net profit of the business rather than what you take out
Limited company advantages
• Personal assets are not exposed or at risk
• When you register a name no one else can use it
• Many tax allowances available that can be offset against profit
• Raising finance and borrowing money is easier
• A more professional appearance
• The Company performance is available to view publicly giving potential Customers more confidence
• Limited companies tend to be more tax efficient as they pay a lower rate of corporation tax on profits
Limited company disadvantages
• Directors have more responsibilities and legal obligations to fulfill
• Performance is available to view publically
• More paperwork – annual company tax return and annual accounts
• Accountancy costs tend to be higher
Every company is bespoke, choosing which legal entity can be daunting. At Worthwhile Accountancy we are happy to run through your options giving you confidence that you have excellent professional support.
