Starting a new business
When starting out in business, some thought will need to be put into deciding on the preferred trading vehicle for the business. Should it be a sole trader or a partnership business? Alternatively, should the business operate through a company?
So what are the key considerations and the advantages associated with these options?
Sole Trader/Partnership
Easy to set up and straightforward to operate.
Requirement to register with HM Revenue & Customs and submit annual tax returns.
Can be tax advantages for the individual, particularly if losses are anticipated in the initial years of trading.
No specific legal requirements for sole trader businesses.
For partnerships it is recommended that a partnership agreement is drawn up, and there is specific legislation relating to the operation of partnerships.
Company
Company will need to be registered with Companies House and various legal documents lodged detailing who the company’s directors and shareholders are, the rights attached to the company’s shares and the location of the company.
Requirement to register with HM Revenue & Customs and to submit annual tax returns and accounts.
Rates of corporation tax are lower than income tax rates and if profits are ‘rolled up’ within the company there are opportunities for extracting profits in a tax efficient manner (although the less scope with the changes in the tax rules on company distributions in recent years).
Any new business will need to decide on a trading name. If the decision is taken to trade through a company, care will need to be taken to make sure that the name is not already taken.
The business may need or want to register for VAT.
Other matters to be dealt with would include opening a business bank account and setting up a website for the business.
For the new business owner, there will be different factors to consider when deciding on the preferred trading vehicle. Does having a business operate through a limited company demonstrate more credibility and show that the business is here to stay? Or does the comparative ease associated with setting up a sole trader business make it the preferred option?
For the new business owner who is undecided, the best option may be to begin trading as a sole trader, to see how things go and then to transfer the business to a company at a later date.
Please get in touch if you are starting out in business and looking for advice.