Should I be a limited company or sole trader?

Easy to set up.

Tax is paid on the profit, therefore the money made is the owners and this can be used for personal expenses with no added tax consequences.

Less forms to file with HMRC, could be just 1 a year.

Some losses in the first year of trading can be used against 3 years previous income.

If you use your own home for the business, “Use of Home” can be claimed. HMRC have set rates, but we have a checklist to see if you can claim more.

Adding a car to the business is simpler and does not attract a benefit in kind.

Record keeping rules are not as stringent.

If a subcontractor under CIS, the tax deducted usually (but not always) covers your tax bill at the end of the year.

Liability, the ‘buck’ stops with the owner of the business. Even if they have insurance this could be limited putting the owner’s assets at risk.

Tax rates vary depending on the profit, from 0% to 45%.

Could be viewed as small, generally limited companies are deemed bigger and more robust.

First tax return can be complex, especially if the year end is not 5 April.

There are fewer tax planning opportunities with a sole trader than a limited company.

There is no tax relief on interest on loans made personally to the business.

Many tax planning opportunities.

One tax rate, 19% on all profits.

Although many banks and lenders would require personal guarantees, there is more protection of an owner’s assets.

With a limited company group structure, potentially, the holding company could sell a subsidiary and pay 0% tax.

R&D tax credits can be claimed.

Potentially, claiming mileage for business trips in a personal car, may be saving tax and an efficient way of getting funds from the company.

Generally seen as a larger business than a sole trader.

Considerably more forms are required to be completed, accounts, company tax return, confirmation statement, directors own tax return and numerous board minutes.

More complex to set up, we would always suggest advice is taken before setting up a company.

It is not as easy to obtain finance for a new company, compared to a sole trader.

The limited company is a separate legal entity to the owners, therefore to take money out of the business is more complex.

Limited details of the company are available for free on Companies House, for anyone, including competitors, to review.

For subcontractors, reclaiming CIS deducted is generally more difficult, for various reasons.

Record keeping needs to be of a better standard.