Which is the best business structure for you when starting out in business?
Most people including myself struggled with this question, which is why we'll go through some of the most popular choices available.
I hope you’ll leave here with a better understanding of the different types of legal structures available to run your business, and ideally make the best choice for your business needs. It’s also advisable to talk through in more detail with an accountant to get the right information.
The most popular choices are listed below:
For most people the easiest form of self employment is to begin as a sole trader. You will need to Register with HER Majesty Revenue & Customs, (HMRC) registration is free and you need to do this within three months of starting your business or you risk a £100 pounds penalty charge.
The number to call HMRC IS 0845 915 4515 (Self Employed Help line or Download Form To Register) This is one of the most popular choices for business just staring out.
As a sole trader you are in full control of your business and need to keep records of your income and expenditure e.g. receipts of any money you spend on your business, utilities, stock etc, and also any income that your business makes through your services or products.
You get to keep all the profits that the business generates, but as you are self-employed your profits are taxed as income and you will have to make an annual self assessment tax return to the HMRC.
You are also liable to pay class 2 contributions a flat rate for self-employed people and also class 4 contributions depending on how much profit your business has made. This is calculated annually from your self assessment tax return. Unfortunately as a sole trader you have no personal protection (unlike a LTD company) you are personally liable for any debts that your business may incur whilst you are trading.
So be warned that your home and any personal assets you have may be at risk if you get into financial difficulties, but saying that as long as you are sensible with your finances and investments you should not have any real problems.
Another popular legal structure if you don't want all the responsibilities of being a sole trader is to share the responsibility with a business partner/s in the form of a partnership. This may be a easier way for you to set up your business as you will have other people to share in the decision making process.
Again each partner registers as self employed with HMR & Customs. It is also advisable to have a written agreement between all partners drawn up to keep everything professional and running smoothly. Each partner takes a share of the profits and the partnership must keep records of income and expenditure. They will each have to submit a separate annual self assessment tax return to HMR&C.
Each partner is liable to pay class 2 contributions a flat
rate for self-employed people and also class 4 contributions
depending on how much profit your business has made. Again(unlike a LTD company)
you have no real protection so all partners are equally liable for
debts owed by the partnership, your personal assets and home may be at
Okay ! so we have covered the first two most popular business structure on this page.The next page explains the following business structures.