Q: What are the different items listed on a sole trader P&L account and balance sheet compared to a private limited company P&L account?
Feb 06 2012
Answered by: Deepaman Prabhakar, Taxclaim Accountants Ask a question
There is no difference as such to what a business can claim being a sole trader as opposed to a private limited company. The fundamental question that is always asked with regards to expenses in the profit and loss is 'whether the expenses are wholly and exclusive in the performing a job'.
As far as the profit and loss account is concerned, a business (sole trader or a private limited company) can claim any expense subject to the above criteria. But the balance sheet is a bit different. The sole trader doesn't have to provide a balance sheet; it is optional whereas this is mandatory for private limited companies under the Companies’ Act 2006 with notes and statements.
The balance sheet is comprehensive in describing all the assets and liabilities of the company. This will include notes as to whether there are any loans in the company, trade creditors, and trade debtors. Anyone looking at the balance sheet of a company can determine to some extent the health of the company as it provide the net worth of the company (Assets minus liabilities).
There are usually more advantages to running the business as a company than as a sole trader, such as limited liability and lower taxation. This is not always true as it depends other factors as well and should be discussed with professional before making an decision.
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