Company vs self-employed

You have your idea that you want to start a business. Now what business entity is the best for you entirely depends on your circumstances.  

Limited Company

A private limited company (Ltd, is its own legal entity and is separate from the people owning and running it. It will need to be registered (or incorporated) with Companies House and must have a suitable name and address.

The company will have a director (usually the person who started the business) who is legally responsible for running the company. And at least one shareholder (also known as a member).

A Ltd company will have to pay Corporation Tax on any profits. And the after-tax profits are divided among the shareholders.

The company will need to submit its annual accounts to Companies House and a tax return to HMRC.

The director will also need to fill in a Self-Assessment tax return. But they will only pay tax on the money they earned by running the business, not the profits.

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Sole trader

This is the simplest business structure. You will run your own business as an individual and keep any after-tax profits.

However, your personal and business assets are not considered separate. This means you are personally responsible for debts associated with the business. You can reduce this problem through insurance, or by choosing one of the other business structures mentioned below.

But do not be put off by the idea of being a business. A sole trader is just that – one person, you, working for themselves. You do not need to be a shop owner. You could be a taxi driver or hairdresser. Becoming a business is just the official term.

To become a sole trader, all you need to do is register as self-employed with HM Revenue & Customs (HMRC).

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