Q: Is it better to start as a sole trader or as a limited company?
Mar 03 2010
Answered by: Clive Lewis Ask a question
It may be prudent to start as a sole trader and then review the situation once the business has started to make a profit.
A limited company can provide opportunities for saving tax once earnings reach a certain minimum level but it involves a significantly higher level of bureaucracy which you must undertake or pay others to undertake on your behalf. Being a sole trader implies unlimited liability for the debts of the business. A limited liability company might also be advisable if the business venture is particularly high-risk.
Direct comparisons are difficult because there are a number of alternative ways of getting money out of a limited company. The earliest likely level of profits at which you might consider forming a limited company is if the profits before the remuneration of the proprietor are £25,000. In normal circumstances you would certainly consider forming a limited company once the profit before the proprietor’s remuneration exceed their starting level of higher rate tax, currently 40 per cent, of £43,875.
Because of the uncertainties in your question, this can only be a very general response. You would be well advised to discuss your particular circumstances with a chartered accountant who can advise you in detail. To find a chartered accountant visit the Institute of Chartered Accountants in England and Wales.
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