So you’ve decided to start a business? now you need to choose your business setup.

Deciding on your business structure is really important and there are lots of factors to consider. Always speak to an expert if you’re unsure on what is best for you.

The majority of self-employed business owners operate as either a sole trader or limited company. Many of us begin as sole traders due to the relative ease of setting-up and the comparatively small ‘admin’ involved. Despite what some people might think, both sole traders and limited company directors alike are still required to submit a personal Self Assessment to HMRC each year.

The ‘admin’ often mentioned when speaking about limited companies really only applies if you’re planning on doing everything yourself. The extra filings will be statutory accounts (which need to be filed with Companies House & HMRC), Payroll as well as Corporation Tax returns. Usually your accountant will take care of all of this for a monthly fee.

At Lagom we like to work with all of our clients on the same basis regardless of their company structure which means that all they need to do is get information to me and I handle all of the ‘admin’ and tax filings..simple.

Let’s talk about costs

Accounting fees will be a lot cheaper for sole traders as there are less tax forms/reports to be filed meaning less work to be done, however usually if you’re a limited company you are earning more money and therefore need a more comprehensive service which justifies the cost.

Protect yourself

The biggest downside in being a sole trader comes in the form of unlimited liability, which means in the eyes of the law, there is no difference between the person running the business and the business itself. Should your business incur any losses, your personal belongings could be up for grabs by your creditors. This is a big consideration if you have personal assets such as a house.

By forming a limited company and liability stops with the company meaning your personal assets are protected. Of course in both scenarios it is vital that you have the relevant business insurance.

Which one saves me more tax?

Operating as a sole trader can be tax inefficient depending upon your profit. Forming a limited company offers the potential for greater profitability once your earnings go over a certain threshold. In general, the sole trader structure is better suited to those just starting out, while going limited will generally suit the more seasoned business. If you don’t already have an accountant, it’s a good idea to find one. They’ll be able to advise on what’s best for you.

Keep an eye out for the resources centre coming soon which will be packed with tons of handy guides!