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When starting a business as a sole trader, you are becoming one of the millions of SE sole traders operating in the UK currently. However, even if being the most popular way to run a business in the UK as a single entrepreneur, numerous people choosing this route often fail to realise that there are significantly more benefits are there in running their business as a limited company or LLC.
So far the easiest way to begin a business in the UK is to register with HMRC as self-employed. You must pay your Tax and NI contributions as well as ensure you keep up to date with the accounting and bookkeeping of your business. You need to pay your tax and NI through the self-assessment system at the end of the financial year and this can be done through your online tax account that HMRC provides.
Advantages and disadvantages of being self-employed
Being a sole trader you can look forward with the thought that you will be working on your terms. It can be a very tempting prospect to be your boss. However, as a sole trader, you will be responsible for sourcing and completing your work. You will not be handed over with tasks. You need to get all your work done by yourself.
It will be your responsibility for all your administration, marketing, and communications. Being your boss means you will not get any support from the marketing department, admin staff, or receptionist for taking care of all the important tasks daily that are involved in a business operation.
Sole trader or Limited Company
When thinking about setting up a business, you need to decide whether or not to register as a sole-trader or form your own limited company. Limited company formation is a more engaging process, you can get support for your limited company formation from RTRSupports Limited. The company will assist you with every aspect of forming an LLC and will ensure that your business meets all the requirements that the Companies House needs to register your company.
As a sole trader, you can select a company name under which you will trade, however, this does not stop a business rival from using your company name to trade under. This makes sense to want to protect your chosen company name and if you fail to do so, then all your hard work will be useless and you have to start from the beginning with a different company name.
However, you might have your plans in place and are ready to implement them. In this situation, you might want to choose a UK company formation package of RTRsupports limited, where you can include everything you need, which also includes a prestigious UK business address. It will be beneficial for your company and will create a huge impact and impress your clients.
Following are some more details about the advantages and disadvantages of choosing either a self-employed business or the limited company routes:
Tax incentives
The advantage of operating your business as a registered limited company instead of a sole trader is that you are likely to pay less personal tax as an LLC. Being a limited company, your profits will be subject to UK Corporation Tax that for the current 2017/18 year is set at 19%. The Government has begun a system where corporation tax will be reduced every year with a target goal of being at 17% by 2020.
With the incorporation of your business and becoming a company director of a limited company, you can save even more money by withdrawing a small salary from your business and then a majority of your income through company dividends. This will minimise the amount of National Insurance Contributions or NICs that you pay. Company dividends are treated differently to salaries that are not for NIC withdrawals.
Whereas the whole income of a sole trader is subject to National Insurance Contribution rules, this implies that you will be paying out more NICs on the same amount of money, which you will be earning as an LLC, but with the status of a limited company, you will be able to keep more of your earnings.
Financial Support and Funding
Sourcing business funding can sometimes be difficult for any business in the current unstable financial situation. However, being a limited company, which is a separate entity from its owners will certainly make things easier for you as compared to a sole trader seeking out funding for your business.
Limited Liability
Forming your business and running your business as a limited company, which means you have the protections of your 'limited liability'. As long as no fraud has happened, you will not be held personally liable for the financial losses of your company. Your business can still be in problem, but you will get through it with your assets still intact.
Business costs
A lot of new entrepreneurs will want to start up as sole traders because they believe it to be the cheaper route for running a business with lower costs. However, it might not be the case as you can set up your own limited company at an affordable rate from the company formation agents, like RTRSupports Limited, and secure your company name and protect it from being used by any other company. Hence, you can now understand that you can form your company at a minimal cost.
Due to the advancement in digital technology and the remit of your accountant to handle on your behalf, you can now do online fairly simply and easily.
Protecting your assets
Forming a limited company has one of the greatest benefits, that is everything you put into your company becomes its separate entity. It means that everything you put into your company name, like your business bank account, machinery, equipment, contracts, and tenders as well as any other business assets, will belong to the company and not you or your shareholders.
This implies that, if the worst happens and the company does not succeed, and the company goes into liquidation, your assets will not be accessible funding for company receivers.
