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
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.