One of the first business decisions you'll need to make is whether to start your business as a sole trader, or to set up as a limited company.

There are pros and cons to both, and it really depends on you and your business.

Setting up

Becoming a sole trader is slightly more straight forward. You'll need to register with HMRC, and set yourself up for Self Assessment in order to pay your tax bill.

To register, or 'incorporate' a limited company, you must register the business with Companies House. You'll be automatically registered with HMRC for Corporation Tax at the same time. The directors of the company will need to register for Self Assessment separately if they plan to take dividends from the company, as well as or instead of a salary.

Responsibilities and administration

A sole trader is the business, and bears all the responsibility, legally and financially. This means that you have full responsibility for any business debts if anything goes wrong. The flipside of this is that once you've paid your bills and tax, the profits are yours to keep.

You'll only need to submit a Self Assessment tax return once a year, though if you become VAT registered, or need to pay employees through PAYE, this adds to the paperwork involved.

A limited company is a separate legal entity to the directors and owners, limiting the liability if things go wrong. This means that any profits the company makes belong to the company, and directors must draw a salary, pay themselves dividends, or both, to take money out of the business.

This can be more tax efficient than operating as a sole trader, though involves a bit more admin.

Limited companies must also submit annual returns to Companies House, as well as Corporation Tax returns to HMRC.

Limited company accountancy services
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