How do you set up a business?

Michael Winkelmann|January 28, 2022

The new year is when many people launch their new business. Once you’ve got your brilliant idea you may need some help in how to go about it. There’s more to it than just choosing a name.

Do you want to be a sole trader or a limited company?

Advantages of sole trading:

You can set up straight away and notify HMRC 6 months before the end of the tax year in which you became self employed ie if you start now in tax year ended 5 April 2022 then you have until 5 October 2022 to notify HMRC. But why wait?
If you make a loss in the first year you may be able to get a refund of any employment taxes that you have paid in the same year
Admin and accounts are much simpler.

Disadvantages of sole trading:

You need to comply with new MTD (making tax digital) legislation sooner than a limited company. Modern software can help with this.
You are tax on ALL your profits, even if you leave them in the company

We have a great blog that dives deeper into the advantages and disadvantages of being a sole trader that will help you to decide on a suitable business structure.

Advantages of a limited company

Separate legal entity limits your legal liability if things go wrong
More flexibility for tax planning. Not the huge tax savings of former years (whatever your mate at the pub says) but you can often affect the timing of taxes

Disadvantages of a limited company

More complex admin and accounts need to be in a statutory format.
You need to complete a tax return for the company and probably a personal tax return too.

Our business is helping small businesses so this is the sort of thing that we do all the time but we also understand that it can be daunting stepping onto the roller coaster of running a new business.

Business Start-Up HMRC Limited Company Making Tax Digital MTD Sole Trading

Whether you’re just starting out or running a growing business, we’re here to help with practical accountancy and tax support that matches your goals. Learn how we support UK business owners at Henry & Banwell Chartered Accountants, and get in touch for advice tailored to your situation.