There are fewer things as exciting as starting up your own business. With the planning process well underway, you’re probably considering the best way to run it.
There’s no right or wrong answer, but you do have options which you should consider. We’re here to talk you through the different ways you can run your business.
Sole trading
The first thing you could consider is being a sole trader. Running your business on your own has its advantages and disadvantages.
First, you’ll be responsible for all areas of your business and be able to reap all the benefits for your hard work. You will be in charge of hiring your staff, managing them and taking control over the payroll.
Setting yourself up as a sole trader also means you will need to keep on top of business expenses, prepare and file your self-assessment tax returns with HMRC and register for VAT.
As a sole trader, you’ll be able to keep all your profits once you have settled all your tax obligations – as well as running your business in the way you think best, without having to answer to partners.
Now for the drawbacks.
In the unfortunate circumstance that your business faces losses, or you take out any loans to help support your business, you will be the only person responsible and you may have to pay from your own pocket. This is an important point to remember, and it’s important to consider the effect it has on your assets.
When you decide to take the weight of your business solely on your shoulders, you will have full accountability. Remember, even if you have members of staff, all the important decisions will be yours to make.
Limited company
If being a sole trader seems a bit too daunting for you, then you have the option to register as a limited company. Once you have your business model in the bag, you will be required to register with Companies House.
Companies House is an arm of the Government which incorporates and dissolves companies while registering their information for the public.
By registering as a limited company, you will be setting up a private organisation to run your business. This means you, personally, will be a separate legal identity from your company, so your finances will be kept separate.
As a director of a limited company, you can pay yourself through a salary and dividends. You might find you’re more tax efficient by doing so, tpo, as dividends have a lower tax threshold than salary pay.
Any losses or debts incurred as a limited company will have shared responsibility with all the shareholders, so you won’t have to struggle on your own.And, if the time comes that you’d like to exit your business, the process will be a lot easier than if you were the only person in charge.
But, while it seems running a limited company may be the easier option, it doesn’t come without its issues. The administration you will need to consider when registering your business, and any tax requirements and audits you will need to prepare for, can be far more time consuming than if you were a sole trader.
What to do next
Sometimes making an informed decision needs a helping hand. At Langdowns DFK, we can provide you with the support and reassurance you need to know you are making the right choice.
Get in touch today to ask us about your business.
