Should I Run My Business As A Partnership / Sole Trader Or Limited Company?

One of the fundamental questions when starting a new business is; “Should I run my business as a sole trader, partnership or limited company”?

In the majority of cases, it will be preferable to run your business as a limited company. Some of the benefits of doing so include:

Limited Liability.

If your business fails, your house and other assets are not at risk (unless you have guaranteed any debts personally).

Taxation savings.

Over the last few years, legislation has changed almost yearly. For some of that period, the first £10,000 of a limited company’s profits were tax free. Although this provision is not currently in force, the Small Companies Corporation Tax Rate presently stands at 21%, from 1 April 2008, for profits up to £300,000.
Although the Chancellor has now back peddled somewhat on the 10% tax band, a self employed person will pay a basic rate of Income Tax of 20% (rising to 40% from £36,000 of income) plus 8% Class 4 National Insurance. This, obviously, represents a minimum saving of 7% on every penny earned for a limited company..

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The perception held by most people is that limited companies are larger entities, and this automatically gives increased credibility.

As long as you actually pay tax (in other words, you earn more than the tax free threshold, currently £5,430 per annum) then the tax benefits of being a limited company will normally be significant, and one of the biggest misconceptions amongst new business owners is; “I’m too small to be a limited company.”

To all of you I would say; “You’re never too small to save tax!”