When starting a business, one of the decisions you'll need to make is whether to operate as a sole trader or a limited company. Here are some differences between the two:
Legal structure: A sole trader is a self-employed individual who operates their business as an individual. A limited company, on the other hand, is a separate legal entity that is owned by its shareholders.
Liability: As a sole trader, you are personally responsible for any debts or legal claims against your business. In a limited company, the liability of the shareholders is limited to the amount of capital they have invested in the company.
Taxes: As a sole trader, you will pay income tax on your profits as well as Class 2 and Class 4 National Insurance contributions. In a limited company, the profits are subject to corporation tax, and the shareholders can receive dividends, which are taxed differently than income.
Financial reporting: As a sole trader, you do not need to file annual accounts with Companies House, but you will need to keep records of your income and expenses for tax purposes. A limited company is required to file annual accounts and an annual confirmation statement with Companies House.
Perceived credibility: A limited company may be perceived as more professional and credible than a sole trader.
Ultimately, the decision to operate as a sole trader or a limited company will depend on your individual circumstances and preferences. It's important to consider the legal and tax implications of each option