Sole Trader vs Ltd Companies

Sole Trader vs Ltd Companies

Sole Trader vs Ltd Companies

Sole Trader Vs Limited Companies For Start-Ups

We have compiled a simple comparison below to help decide between choosing the Right Business Structure for YOUR business.

This is not a comprehensive list, and we strongly advise that you seek additional professional advice before making your final decision.

It is important to understand clearly the differences between trading as a Sole Trader or through a Limited Company.

Legal Difference

Sole Trader / PartnershipLimited Company
YOU are the businessThe business (Ltd Co) is a separate legal entity
This is probably one of the main disadvantages of being a Sole Trader, as you are personally liable for any consequences of business failure.The liability is ‘Limited’ to the Capital invested by you as the shareholder
The risk could be mitigated (though may not be completely removed) through Public Liability Insurance.It is important to note however that although it is extremely rare that the Director of the Limited Company to be personally liable, there are exceptions such as:
Fraudulent Trading (court may declare that the directors or others who were knowingly parties to the fraud are liable for some or all the debts and other liabilities)
Wrongful Trading (continue to trade when they know, or should know, that the company cannot meet its debts)

Accounting & Tax Implications

Taxes On Earnings

Sole Trader / PartnershipLimited Company
You payThe taxes you pay depend on how you choose to extract the funds. If planned correctly then you can save much more than a Sole Trader on your overall taxes.
Income TaxCorporation Tax on taxable profits. This is much lower than Income Tax rates
Class 2 & 4 National Insurance on the taxable profits of the business.Where funds are extracted through salaries these attract:
Income Tax
Employee & Employer National Insurance Contributions
Shareholders would be subject to Income Tax on Dividends
It is important to note any that where IR35 and Managed Service Company rules apply, the company will deduct Income Tax (PAYE) & NIC on its income rather than as dividends

Accounting & Record Keeping

Sole Trader / PartnershipLimited Company
Can offset against Personal IncomeCan only be offset against Company profits
This is quite a big difference, since, if you have other earnings and expect to make significant losses in initial year of trading, it may be more tax efficient to start trading as a Sole Trader firstSince the Company and you are separate entities, any losses incurred in the company can only be offset against income from the Company

Audit

Sole Trader / PartnershipLimited Company
No Audit is requiredAudit thresholds apply
A Limited Company requires to have an audit if 2 of the three conditions below apply:
Annual Turnover of more than £10.2 million
Assets worth no more than £5.1 million
50 or fewer employees on average
Since the Company and you are separate entities, any losses incurred in the company can only be offset against income from the Company

Other Considerations

Prestige

Sole Trader / PartnershipLimited Company
May be portrayed as a small companyGives impression of a sound organisation
This may mean it is more difficult to get larger jobs. Larger organisations may be less willing to work with small businesses with one staffThough this does guarantee reliability, a Limited Company gives the impression of a more credible Business than a Sole Trader
In certain sectors, contractors or agencies may be less willing to work with Sole Traders due to lack of legal protection that a Limited company provides

Borrowing

Sole Trader / PartnershipLimited Company
Borrow from bank personallyThe company can borrow on its own name
Bank can usually take security by mean of a ‘fixed or floating charge’ over the assets of the Limited Company

Pension

Sole Trader / PartnershipLimited Company
Can only have Personal PensionHave option of Personal or Company Pension Schemes

Death

Sole Trader / PartnershipLimited Company
When you die, the business ceasesLives on
Since you are the business are the same, the business ceases to exist upon the death of the Sole TradesThe company is a separate legal entity and can continue to operate after death of owner

Why Choose Us

Dedicated Accountant

Providing top service to our clients is at the heart of Fusion accountants work ethos. Hence, one of point of contact, who understands your business and can work with you closely and efficielty.

Accredited Accountant

To ensure that you get efficient and accurate service first time every time, we make sure all our client managers are adequately qualifed and accredited by our accounting softwares providers, such as Xero, Quickbooks and FreeAgent. So you can be rest assured you are in good hands.

ICAEW & ATT registered

We are no cowboys, as a registered firm and regulated by Institute of Chartered Accountants in England & Wales (ICAEW) and the Association of Taxation Technicians (ATT), you can feel assured that you are in good hands.

Transparency & Simplicity

Unlike other accountants, you wont get surprise bills with us, we offer all inclusive competitive monthly fixed fees. We believe in simplicity, transparency when communicating with our client.

Forward Thinking

We love technology, wether its adapting new technology ourselves to bring you top notch service or advising you in running your business more effeiciently through automation.

Value Add Service

We don’t see ourselves as just number crunchers, there are software to do just that, we believe in Value add service, whether that’s in Tax planning, business advisory or just helping you better understand your financials.

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