Sole trader vs limited company

Limited company advantages. Unlike a sole trader a limited company has the benefit of limited liability , as incorporation forms a legal distinction between the business owner and their business. What is a sole trader? This means that personal assets aren’t exposed – you only stand to lose what you put into the company.

The most popular legal structures in the UK are sole trader and limited company. To help make the choice between running your business as a sole trader or limited company clearer, AXA explores the ins and outs of each business structure, so you can weigh up your options and decide on the route that’s the best fit for you. Some of the advantages of trading as a limited company vs sole trader are as follows: Limited liability - Any liability is limited to the amount of issued share capital. As you can see, running your business as a sole trader and forming a limited company are two completely different things.

Strictly speaking, you can’t have a sole trader company as the word ‘company ’ should only be used when you’ve registered your business with Companies House (which we can help with via our company formation services). A limited company can only offset its trading losses against other company income but not against your income as a shareholding director. Running a limited company is more complicated and expensive than being a sole trader, but being a sole trader also has some big downsides. When you’re weighing up sole trader vs limited company, the one that’s right for you is likely to come down to personal circumstances and what you envisage for the future of your company. For limited companies run by an individual, the person in question becomes the director of the company as well as its only shareholder.

To become a sole trader, you must register using the government portal within three months of founding your business. A limited liability company is one which is legally distinct from the identity of the owner. It has a unique company identity, which must be registered (for a small fee) with Companies House.

Read more about the difference between sole trader and limited company. Why become a limited company ? If you’re already a sole trader , incorporation might be a good step in certain circumstances. Many small businesses and self-employed people start out as sole traders because it’s the easiest legal structure to set up – especially when.

A sole trader is basically a self-employed person who is the sole owner of their business. Unlike a limited company , a sole trader doesn’t have to register with Companies House or have a director. For example, I’m a freelance copywriter, which means I’m self-employed and I’m registered as a sole trader.

The fundamental differences between sole traders and limited companies. That means that a sole trader takes full liability. Both sole traders and directors of limited companies are required to submit a personal Self Assessment to HMRC, but those operating a limited company must also submit extra paperwork to regulatory authorities (Corporation Tax, Annual Accounts, VAT returns if VAT registered). Failure to submit returns on time usually in significant fines and penalties. Limited company vs sole trader Your limited company – it’s all in the setup One of the advantages of setting up a limited company is that, while there is a cost involve this can be negligible.

In fact, if you use a formation agent it can even cost less than your Companies House registration, while still including it. If you run up debts as a sole trader , creditors have the right to claim your personal assets to balance their books. UK sole proprietor (select this option if you’re a sole trader) Business (select this option if you’re a Ltd. company) In both cases, Amazon will ask you to provide your business information, including your company registration number if you’re a Ltd. UTR number if you’re a sole trader. You are free to borrow from the business bank account, it is your account.

If your business bank runs at an overdraft due to the amount of funds that you have withdrawn personally, tax relief on bank charges and interest will be proportionately restricted. Sole trader vs Limited Company. If you decide you want to start a Limited Company , you need to register with Companies House and appoint a director (which is most likely yourself to begin with). In addition to a tax return you also need to file company accounts. There are many advantages to running your business as a Limited Company.

Many people make the move from working as a sole trader to running a Limited company for financial reasons. There are a number of ways in which you could save money as a Limited company which aren’t available to you if you are a sole trader, although there is a little extra admin involved.