When you first decide that you want to start a business, there are lots of decisions to make, many of which you might not have considered until you started looking into the process more. However, while there are something which seem important, such as your company name and how you are going to market yourself, one of the most important things is to consider how you will structure your business to ensure that you are setting yourself up for success right from the outset.

Business owners can operate through whichever system suits them best, but it is always best to ensure that you have as much information to hand as possible to ensure that you are making an informed decision which will work best for you. The most common two structures are, forming a limited company or registering as a sole trader. Below is a breakdown of both.

A Limited Company

A limited company is one of the most popular ways to operate because it is the most tax efficient way to trade and minimises the risk to the directors.

A limited company constitutes an entirely separate entity to the owners, even if one director is the sole shareholder. This means that any assets or funds are owned by the company as opposed to the shareholders and are withdrawn as dividends to the shareholders or salaries to any employees. This means that company profits can be maximised as dividends do not attract National Insurance contributions, meaning that this can be a money-saving way to make the most of your income.

Limited liability is another reason that many people choose to operate through their own company, as this means that they are not personally responsible for any debts or liabilities incurred by the company.

Other modes of business organisation are rarely as tax efficient as limited companies, and those which claim to be often offer money saving opportunities which do not comply with tax laws. It is important to remember that you bear ultimate responsibility for your tax affairs, so using a provider who promises savings which seem too good to be true could leave you liable for outstanding tax owed and substantial fines.

Trading as a limited company is recommended by most tax experts for anyone who wants to save money, and with the help, advice and support of an experienced accountant, the process can be simple, straightforward and easier than you may think.

Sole Trader

For many people, operating as a sole trader is the natural way to begin their career working for themselves as all that is required is to register with HMRC and paying National Insurance and Income tax using the systems provided. For this reason it is a popular way or working amongst traders such as plumbers, builders and taxi drivers who choose to work for themselves.

One of the main things to be aware of if you work as a sole trader is that you are the business, meaning that there is no legal distinction between your personal finances and those of your business. This means that any personal assets you might have will be considered if you are pursued for liabilities you may have on behalf of your business, such as loans or other debts.

For some people, it makes sense to operate as a sole trader, particularly if they have minimal business expenses and are unlikely to lose out on tax savings by deciding not to incorporate. However, in some industries, sole traders find it hard to secure work as many potential clients, particularly larger organisations may prefer to work with people who they can be sure are not going to be classed as ‘falsely self employed’. Agencies in particular are not able to offer work to those who operate as sole traders and will therefore deduct PAYE tax and National Insurance Contributions at course on your behalf.

If you think that being a sole trader is right for you, then Nixon Williams can help you when it comes to informing HMRC, assessing your VAT situation, keeping track of your income and expenditure and choosing and managing your business bank account.

How can Nixon Williams help?

Whether you are just starting out and want advice on how best to establish yourself, or you have built up your business and want to take advantage of the tax advantages available to you, then our accountants can help. With an in-depth understanding of the issues involved and plenty of experience helping contractors and small businesses to achieve their potential, our accountants are always on hand to offer the benefit of their expertise. For more information on the packages we offer and the support we can provide, call us today on01253 362062 or email us at jacqui.fairbrother@nixonwilliams.com.