Being incorporated (Ltd) or Unincorporated (Sole Trader)? A non-Accountants Overview

Business Entities  

There are two main types of entity in the UK, which are:

An incorporated (Ltd), or

An unincorporated Limited (Sole trader)

Incorporated (Ltd) business

General points of consideration: - 

1.    A Limited company in the UK must be incorporated legally with Companies House. Once you register your company with Companies House your company is protected by law therefore no-one can use the same name as you. 

2.    When a limited company is incorporated limited company is incorporatedlimited company is incorporated it is considered a separate entity by law from the directors of the business. 

3.    A limited company is responsible for its own liabilities and debts. 

4.    Limited companies have to file annually a confirmation statement. The confirmation statement shows any changes to the company during the year for example, details of the director appointments or terminations or changes of persons with significant influence. 

5.    Company’s annual financial statements (accounts) are required to be shown publicly. This may not appeal to all.  Companies pay Corporation tax on profits not income tax. The current rate of corporation 2020 is 19%. 

6.    Directors will complete a Self-Assessment tax return annually for HMRC for income taken from the company 

7.    The appointment of an accountant to process the above would be an advantage.

Sole Trader (Non Ltd)

 A sole trader is the easiest way to become your own boss. S0, you will be liable for your company’s successes and failures.

 Responsibilities of being a sole trader include:

 1.     Maintaining accurate accounting records for the business such as, sales, costs of sales and other expenses.

 2.     Completing a Self-Assessment tax return annually for HMRC

 3.     Payment of Class 2 National Insurance.

 4.     Payment of income tax and Class 4 National Insurance on all profits of business above the threshold set by HMRC

 5.     You are not separate from the company, so your personal possessions may be at risk

 6.     Company name is not protected, could result in someone else trading under your company name.