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Taking the leap into self-employment

Taking the leap into self-employment takes a lot of courage. The first decision to make is what business structure will you move forward with? Your business structure is important and will pave the way for your businesses future. This is in terms of the financial and legal matters of the day to day maintenance and administration.

Soletrader

As a soletrader it is all about you, any profits are counted as personal income, there is no separation between your business and personal assets. As a soletrader you have few regulations to adhere to, for example you don’t need to register with Companies House. You will be required to complete a registration with HMRC for self-assessment and you will have to complete a self-assessment tax return. An advantage to operating in this way is that you can withdraw cash from the business without any tax affect. 

Partnerships

Like a soletrader you will have to complete the individual self-assessments along with the partnership accounts. As there is joint liability for any liabilities it is important to create a partnership agreement which is signed by all.

Limited Liability Partnership (LLP)

This option means you have the flexibility of the traditional partnership, but you are protected regarding potential liabilities. Each partners liability is limited to the total sum that they initially invested. As above you will have to complete the individual self-assessments along with the partnership accounts.

Limited Company

A limited company has separate existence to that of their directors. Personal finances are separate to those that the business has. This might be a positive factor however there are more exhaustive requirements of a limited company. For example, registering with Companies House and submitting the company accounts. There are significant penalties for failing to send the accounts on time and you also must consider National Insurance contributions as they are greater than that paid by a sole trader/partner. You are also taxed if you withdraw income from the company, if it is distributed it is taxed as a dividend.

It is best to do your research and seek advice.