Self-employed or limited company?
This is definitely a must-do. If we had to pick the most important task from our checklist of very important tasks, this would be it. You've essentially got two ways to go: self-employed or limited company.
Freelancers, partners and sole traders are self-employed. They have very few set-up costs but they'll be liable for the debts if it all goes wrong. Often people form limited companies to shield their personal assets from any debts the business may make.
- Becoming a sole trader is the most popular way to start a company in the UK. The reason? It's easy and simple. As soon as you've registered with HMRC for Tax and National Insurance (which you should do soon after launch) you have a company you can call your own. As a sole trader you can employ staff, but most often sole traders are people who are striking out on their own.
- When it comes to the finances, if you're self-employed, you simply have to complete a Self Assessment tax return every year – something you can do on your own without the help of an accountant.
- Sole traders or partnerships might be easy to set up, but the fact that they don't offer protection from a company's debts makes a limited company the right choice for many. As a director of a limited company, and as long as you operate legally, your personal assets won't be at risk if your company can't pay back a debt.
- Some people feel that being a limited company offers credibility to their services or business, but that's a personal choice and depends on your business. Also, if you are contracting your services to bigger companies, they may insist on you having a Limited company.
- Setting up a limited company is not difficult and is done by filling out a number of forms, all of which are available from the Companies House site. If you'd rather not do this yourself, there are companies that will set it up for you for a small fee.
- The accounts for a limited company must follow a form set out in law. They will need to be drawn up by an accountant then submitted to Companies House. The fact that you must use an accountant has an upside - they should be able to advise on how you can legitimately get the maximum value from your firm (by, for example, supplementing your wages with dividends).
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Last updated: about 3 years ago