Limited company or sole trader? Small businesses are an important part of the United Kingdom structure. These may be small and may not be as known as multi nationals, but they do help out the country in a big way. They help with bringing unemployment down as they create work places. They give jobs to those who need such. Employees are very important as well as they help keep processes running smoothly. This way the owners can focus more on the core tasks and running the business. They help these businesses grow and expand.
Aside from such, small businesses also help out the country’s economy. They help bring in revenue to the government and keep the economy strong. This is one of the reasons why the government makes sure that it supports small businesses. They make sure that people know about small businesses and urge locals to support these.
For owners of small businesses, one has to decide the legal structure that they would be running and working under. There are two basic options that they can choose from – sole trader or a limited company. So for small business owners, the question really is which one should they choose? Here are some differences between the two.
Taxes
When it comes to taxes, a limited company is required to pay tax known as Corporation Tax. This should be done for all of the annual profits. Aside from this, the director of the company also has to pay personal taxes based on what they get as income. As per taxes of sole traders, they have to pay taxes on all of the profits that they get per year. This the difference between the two when it comes to taxes.
Keeping records
Owners of limited companies know that the company needs to be registered. They must report any changes to the Companies House. Registering and updating can now be done online, so owners do not need to spend some time going to Companies House to get things done. In terms of sole traders, all records still have to be accurate and correct. The individuals must comply with all the regulations and rules within the industry. This is the difference between a limited company and a sole trader with regards to records.
Credibility
Studies have shown that many customers and clients are more than happy to deal and transact with a limited company because they feel more comfortable doing so. Limited companies are seen to be a lot more established and are also more stable, compared to a simple trader. Although there are still those who deal with self-employed individuals, choosing between sole traders and limited companies, clients would more likely choose limited companies.
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published under Tax and Legislation Guides
