Business Structure - Pros and Cons Something we are often asked by clients is whether they should incorporate or not. Hopefully the below Pros and Cons is helpful. But please do get in contact before you make any decisions to discuss how this could affect you. Company Sole Trade Formally incorporated with Companies House, initial setup cost for doing so No formation costs, inform HMRC that you are a Sole Trader Separate legal entity, more difficult to run Business and individual are same entity, much simpler to run Governed by Companies Act, therefore the company must: - Keep accounting records - Accounts audited (if over thresholds) - File accounts and confirmation statements annually with Companies House. Info is available to the public - Keep Statutory Books with Directors and Shareholders Not required by law to keep annual accounts or file accounts for inspection. However, accounts are necessary for Self-Assessment tax returns (SATR) Following filed each year: - Accounts - Confirmation statement - Corporation tax return - SATR for Directors/Shareholders Only SATR to HMRC Shares in company are transferable – ownership can change but business continues Business generally ceases with the Sole Trader Can be more prestige/marketability associated with being a Ltd Being unincorporated does not always carry same prestige Directors/shareholders are protected by veil of incorporation, only company assets are at risk All Sole Traders personal assets are at risk Tax on Directors: - Only taxed personally when extracting income from the business - Salary – PAYE to HMRC by 19th each month - Dividends – SATR rules Tax on Sole Trader: - Taxed on all profit in the business - Paid in instalments, 31 January and 31 July Tax rates: - Corporation tax – 19% - PAYE – 20%/40%/45% - Dividends – 7.5%/32.5%/38.1% Tax rates: - 20%/40%/45% National Insurance: - Employers – 13.8% - Employees – 12% then 2% - NI contributions depends on Salary National Insurance: - Class 2 NI - £3 p.w. - Class 4 NI – 9% then 2% Expenses must be incurred wholly, exclusively and necessarily for the business Expenses can be incurred wholly and necessarily for the business