Understanding Different Kinds of Self-employed Business Set-ups

Which self employed set up is right for you?

If you are considering becoming self employed or setting up your own business, one of the first things you’ll need to do is decide which set up will be the right one for you. Below we take a look at 3 of the main options;

Sole trader

As the name suggests, this structure is one single self employed person. It is the simplest option meaning you run and own your own business and keep any after-tax, after expenses profits.

It does also mean though that you are personally liable for any of the debts the business accrues as your personal and business assets are not considered separate.

You can ofcourse offset this to a degree by taking out some forms of professional insurance. Also, if you are, for example, working from home, your outlay may be minimal.

When becoming a sole trader, you will need to register as self-employed with HMRC. You will also benefit from understanding what you can claim on expenses as this will reduce your tax bill. You will also need to submit a Self Assessment tax return each year in by January 31st. You can either do this yourself or your accountant can do it for you for a modest fee.

Partnership

When you go into business with one or more other people, you may want to set up a partnership. This means you will have shared responsibility for the business.

It’s very important that you draw up a partnership agreement, which will detail how the profits will be split up.

Business debts are the responsibility of all members of the partnership and are dealt with under what is known as Joint and Several Liability.

With this set up all partners will need to submit a Self Assessment tax return for themselves and one nominated partner will have to submit a partnership Self Assessment for the business. Again this is something your accountant can help you with

Private limited company (Ltd)

A private limited company (Ltd), is separate from the people who own and run it and is its own legal entity. This means that your personal assets can't be seized to pay debts, unless you've given a personal guarantee to a company creditor. The company will have at least one director and a company secretary. There are various duties involved with each role. It will also have shareholders.

To start a limited company, you will need to register an official company name and trading address with Companies House. Details of these and the significant persons involved are publicly available for anyone to see.

A Ltd will have to pay corporation tax on any profits, and the after-tax profits are divided up among the shareholders.

The company will need to submit its annual accounts to Companies’ House and a tax return to HMRC. Any directors will also need to fill in a Self Assessment tax return. Although you can do all of this yourself online, most companies in this set-up will use an accountant as there are penalities associated with getting things wrong. An experienced accountant will be very familiar with everything required to conform, so it should be fairly straight-forward.

Information on all of these setups can be found here www.gov.uk/set-up-business. If you are thinking about starting your own business, we will be happy to advise and remember, your first consultation is always free of charge.