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Every business owner has a different level of understanding to the legal and tax side of business. If you are new to this part of running a business, help is here!
Being a sole trader has benefits such as less start up paper work and less formalities. This status means that you are running your business as an individual and therefore are accountable for all legal elements.
A sole trader is self-employed and keeps all profits from the business once all taxes owing have been paid. They are personally accountable for debt and legal aspect as they have no protection, unlike the owner of a limited company.
You are not required to produce accounts or have a separate business bank account but do need to complete annual tax self-assessments for HMRC.
As a sole trader you will pay income tax on all earned income over your personal allowance.
A limited company is the commonly used route that newly formed business take. An Ltd company is a privately owned entity which is made up a single or number of shareholders. The positive to owning a limited company is the liability of the company remains with the company and not the individual unlike the Sole Trader.
A limited company is required to pay corporation tax on all profits that it makes, the normal rate being 20%.
LLPs are partnerships (corporate bodies) where the partners have limited liabilities and are common in the accountancy and legal worlds. This status means that one partner may not be liable for the actions, advice or misconduct of another partner. It is normal to have a governing partner who has full liability for the partnership. LLPs are really for bigger corporate organisations and not really applicable for small businesses.
LLPs do not pay any corporation tax, income tax or capital gains tax but each individual is taxed on their share of the profits. An LLP is required to file annual stator accounts.
Value added tax (VAT) is added to most things we buy, but as a business you can claim VAT back on items you have paid minus what you have earned.The current rate of VAT that can be charged if applicable on your services is 20%.
All companies who are turning over £85,000 must be VAT registered, fill in a VAT return and pay any monies owed on a quarterly basis.
Whatever type of business you run, make sure you are protected. Whether you’re a large business, SME or sole trader, work from home or have a property empire - Towergate have got an insurance policy for you.
Towergate is one of the leading insurance intermediaries in the UK and provide a specialist range of SME liability insurance products. Our team of dedicated advisers are highly trained and will handle your enquiries confidentially, We offer suitably priced products from a range of carefully selected insurers.
For more information, visit our dedicated business insurance page or see our cover for a range of trades.
Alison Wild BCom (Hons), MAAT, ATT, Taxation Technician is a highly respected industry professional who has been working with and advising SMEs in areas including tax, pensions, insurance and marketing for over 25 years. She is a member of the Association of Accounting Technicians (AAT) and Association of Tax Technicians (AAT) and also has considerable experience as a residential landlord.
This is a marketing article by Towergate Insurance.
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