Sole Trader:
A sole trader is a simple business arrangement in which one individual runs and owns the entire business. There is no legal distinction between the owner and the business entity. It is easy to set up with relatively less paperwork.All you have to do is to register as self-employed by registering for Self Assessment. You are not required to file annual accounts but will need to keep a record of business income and expenses for filing tax return. As a sole trader you will be liabale to pay Income Tax and National Insurance (Class 2 and Class 4 NI).While sole traders can keep any profit their business makes, they may also have to repay any debt out of their own pocket. There are limited expansion opportunities for sole traders as banks and other investors tend to prefer limited companies.
Limited Company:
A limited company is a type of business structure that has its own legal identity, separate from its owners (shareholders) and its managers (directors) meaning that owners and shareholders are not personally liable for any losses or debits incurred by their business. To set us a limited Company you would have to register it with Companies House. Limited Companies brings additional paperwork and added reponsibilities. The Company would need to file Annual Accounts and file Corporation Tax Return with HMRC. It is also required to file Confirmation Statement having details of directors,shareholders and registered office. Broadly speaking, limited companies stand to be more tax efficient. There is a wider range of allowances available and Corporation tax is payable on taxable profits @ 19%. Any salary drawn by the directors has tax dedcution via Pay As You Earn (PAYE). Both employer's and employee's National Insurance (NI) is payable on directors' salaries. The Company details are visible publically including the company's earnings which increase transperancy and credibility to third party.
