Limited company or self employed?
In the current economic client and with ever changing tax rates and rules, tax planning is harder than ever before. Each business and business owners’ own personal circumstances need to be considered, the type of business you are thinking of running, along with industry norms. Is it a different lifestyle you are looking for or to build and then sell? This is blog is an overview and not specific advice for your circumstances, think of it more points for you to consider with the bigger picture. That being said, we believe that investing in good, sound professional advice from the outset will give you the best financial platform to start from.
Regardless of what setup/structure you choose, good accurate records of sales and expenses must be kept. Severe penalties can be imposed by HMRC for poor record keeping.
A limited company
The company is a separate legal entity to yourself. A business is incorporated at Companies House. There are laws and rules which company and its owners (yourself) have to abide by. Shareholders own the business and the directors manage it. These are listed and the company’s registered office detailed.
The company is required to have its own bank account. Money for yourself as the business owner needs to be taken out in specific ways. The company bank account is not be used as your own personal account. Any employees are employed by the company and not yourself.
Accounts are prepared to the company’s year end, which is usually the month end in which the company was set up (although this can be changed). A corporation tax return needs to be submitted annually to HMRC to declare the profits (or losses) made by the company. The company pays corporation tax on any profits to HMRC.
A shorter version of the full accounts goes into the public domain at Companies House (small and medium sized businesses only).
PROS & CONS
Self Employed (A sole trade business)
A sole trade business is an unincorporated business (ie not a limited company). Its you, personally.
Setting up a sole trade business is done via HMRC by registering as a business. If you are not already registered to submit a Self Assessment Tax Return then HMRC shall provide you with a unique tax reference number (UTR). This is needed to submit your self assessment tax return. A personal tax year runs from 06 April until 05 April.
Annual accounts for the business are prepared each year to 31 March/5 April and any profits are declared on your personal tax return. The tax return and any income tax which is due must be paid by 31 January, following the end of the tax year. For example for accounts year ended 31 March 2025, these sit on your tax return for the year ended 05 April 2025 and need to be submitted HMRC by 31 January 2026, with any tax paid then.
Making Tax Digital (MTD) comes into effect from sole trade businesses from 06 April 2026 …read our blog on the thresholds and who it is compulsory for first. Essentially, MTD means quarterly digital reporting to HMRC of your income and expenses.