Sole Trader

You’re classed as a Self-Employed Sole Trader if you start working for yourself, even if you haven’t informed HMRC.  As a Sole Trader, you keep all of your business’s profits after you’ve paid tax on them. You can employ staff (Sole Trader means you’re responsible for the business, not that you have to work alone).

You’re personally responsible for any losses your business makes.

You must:

  • Complete a Self Assessment Tax Return every year
  • Pay Income Tax on the profits your business makes
  • Pay National Insurance
  • You must also register for VAT if you expect your takings to be more than £82,000 a year

Limited Company

A limited company can be set up to run your business.

A Company’s finances are separate to your own personal finances.

Any profit it makes is owned by the company, after it pays Corporation Tax.

Every limited company has ‘members’ – the people or organisations who own shares in the company. Directors are responsible for running the Company. Directors often own shares, but they don’t have to.

There are many legal responsibilities involved with being a director and running a limited Company.

Limited by shares

Most limited companies are ‘limited by shares’. This means that the shareholders’ responsibilities for the Company’s financial liabilities are limited to the value of shares that they own but haven’t paid for. Company directors aren’t personally responsible for debts the business can’t pay if it goes wrong, as long as they haven’t broken the law.

Private company limited by guarantee

Directors or shareholders financially back the organisation up to a specific amount if things go wrong.

Public limited company

The company’s shares are traded publicly on a market. You can also consider setting up a private unlimited company as an alternative legal structure. Directors or shareholders are liable for all debts if things go wrong.

You must:

  • put together Annual Accounts
  • send Companies House an annual return
  • send HMRC a Company Tax Return
  • The Company must register for VAT if you expect its takings to be more than £82,000 a year.
  • If you’re a director of a limited company, you must:
  • fill in a Self Assessment Tax Return every year
  • pay tax and National Insurance through the PAYE system if the company pays you a salary

Partnership

In a business partnership, you and your business partner(s) personally share responsibility for your business.  You can share all your business’s profits between the partners. Each partner pays tax on their share of the profits. You’re personally responsible for your share of any losses your business makes, and bills for things you buy for your business, e.g. stock or equipment. You must register your name of your partnership with HMRC.

All the partners must:

  • send a personal Self Assessment Tax Return every year
  • pay Income Tax on their share of the partnership’s profits
  • pay National Insurance
  • The partnership will also have to register for VAT if you expect its takings to be more than £82,000 a year