Sole Trader or Limited Company
When you’re setting up a new business, one of the major decisions you have to make is the type of company it will be. Each different format has different implications for tax, ownership and responsibility. Here we outline the main points of each company structure.
Sole trader or limited company?
• Setting up in business on your own
gives you complete control and fewer
• But there are implications for tax and
• As you have unlimited liability, you could
risk personal loss if something were to go
• Sole traders include an annual self
employment return with their income tax
return and pay income tax and national
insurance contributions on the profits.
• If two or more people run a business
together as partners, they share profits,
losses and unlimited legal liability.
• It is a common formula, but it is essential
to define the rights and responsibilities
of partners and to set them out in a
partnership deed. This requires special
accountancy and legal skills.
• All partners include an annual self
employment return with their income
tax return as well as a partnership tax
return (showing how profits were divided
between the partners).
• Partners pay income tax and national
insurance contributions on their share of
Prepare for business,
prepare for success.
ICAEW Business Advice Service
The ICAEW Business Advice Service (BAS) provides
professional advice for start-ups and owner-run businesses.
As well as practical help online in the form of white papers,
short PDFs and blog articles, we enable businesses to
receive an initial consultation at no charge from an ICAEW
ICAEW Chartered Accountants are the biggest source
of business advice, reaching over 1.5m businesses from
more than 20,000 offices across the UK.
If you need further help with VAT issues,
a free initial discussion with an ICAEW
Chartered Accountant is a good place to
start. Visit businessadviceservice.com
This leaflet is part of a series.
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