If you are starting a new business and you are unsure about the best trading structure, then you should read this blog. It outlines the key benefits for each way of trading.

Alternatively, you may be an existing business, and you want to change how your company trades for something more efficient, in this case, it's always useful to seek advice from your accountant, but as a first step, some of the information here will help you in the decision-making process.

There are three main types of a company structure; these are:

• Self-employed, also referred to as a sole trader
• Partnership – when 2 or more sole traders want to work together
• Limited Company – This has Directors and Shareholders

The list below gives you some of the benefits of each type of company structure.

It is important to note that a particular business structure may be better depending on the type of business you run, and the types of customers/clients you want to target. For example, if you plan to offer high-cost services to large companies, you may find that being a Limited Company from the outset puts you in a better position than operating as a sole trader. Your accountant should be able to offer you advice.

Self-employed/sole trader

Advantages

• Free to set up and easy to start trading
• Can start straight away, no waiting for approval
• You don’t need a business bank account
• Perfect for those that want to trade alone
• Income reported via an annual Self-Assessment return

Disadvantages

• Tax planning is very inflexible
• Your personal assets are at risk
• There are no formal accounting procedures

Partnership

The advantages and disadvantages are the same as above. The only difference is that all income, expenditures and risk are shared between two or more people.

Limited Company

Advantages

• This is a legal and formal structure
• This operates as a separate legal entity
• There must be at least one Company Director
• Remuneration strategy is more flexible
• Personal income is reported via Self-Assessment
• Gives security on personal assets

Disadvantages

• Can take a few weeks to set up properly
• You need to pay a formation fee
• You must have a business bank account
• There are two forms of Legal Standard reporting required: Annual Accounts to Companies House and Company Tax Return to HMRC

It is also important to remember that whichever structure you decide to adopt you still need to be working towards Making Tax Digital, to find out more read this blog – Making Tax Digital: How to be compliant.

If you are a business start-up or you are an established business and are considering changing your company structure, please do contact us for advice. You can call 01623 490 120 or email This email address is being protected from spambots. You need JavaScript enabled to view it..