Setting out on your own can be the scariest decision you ever make, but, if done correctly, it could turn out to be the best.
However, to maximise your chances of success a number of important decisions must be made; one of which is business structure. Life Accountancy can help you with the decision making process and can assist at all stages of the process removing at least one major source of worry.
There are three common business structures for startups. Each has its own qualities and should be carefully considered, as the profitability and success of your business really can hinge on the choice.
This is the simplest structure. You won’t need to register with Companies House and you won’t need to pay corporation tax. If you’re not running a payroll, paperwork and red tape will be greatly reduced too. Financial responsibility however is in your hands and you will have yearly tax returns to contend with.
You will also have legal responsibility for your business which can leave you exposed to much greater risk than other structures, so advice is a must.
Partnerships are often similar to a sole trader set-up – only they have more than one owner and each can be individually liable for the business’s entire debt, if one partner walks out, for example. A limited liability partnership (LLP) offers more protection to individual partners as it limits liability to what each partner has invested in the business.
You will however have to register with Companies House and put certain information on the public record if taking this option, much like a limited company.
Sole traders and partnerships can also enjoy tax savings when it comes to providing benefits in kind. For example, providing yourself with a car for business travel is likely to be far more tax efficient this way than through a limited company structure.
Limited companies offer a different set-up altogether. Companies must be registered with Companies House and pay 20% corporation tax on profits.
Payroll taxes (under PAYE) will also be relevant, although this is the case where you have employees in any structure.
Depending on your profits, corporation tax can offer a much more attractive rate than income tax. You broadly have a choice of whether to pay salary or dividends to yourself with this option, but it is generally advisable to pay a salary of at least a modest amount, even if only to preserve your entitlement to state benefits.
Dividends can offer business owners a very tasty tax rate compared with salaries, but on the other hand, they do not qualify for pension relief, so are not tax-efficient for growing your retirement pot.
Life Accountancy can provide all the assistance you need for setting up the best entity for you. Contact us for further details.