Good News Liverpool this week told us that; ‘Liverpool is proving to be the real northern powerhouse as new figures show it is leading the UK in the number of business start-ups. Companies House reports that 134,569 new businesses have been registered in Liverpool since January 2014 meaning 15.5% of the city are making wealth for themselves – more than any other city in the UK.’
Whilst this is a piece of great news for the city, we are asking the question why do start-ups choose this status over others? Choosing the right legal structure for a new business is an important decision and it is always advisable to seek advice before making such a decision.
For many people starting up a new business status, Sole Trader status could be the best option as the record-keeping and administration is quite simple, but there are a few things you need to do.
Keep a record of business income and costs and submit a Self-Assessment tax return once a year.
Pay income tax on any business profits (After allowing for your Personal Allowance)
Pay Class 2 National Insurance (£2.80 per week) on any profit over £5,965
And potentially Class 4 National Insurance of 9% on any profits between £8,060 and £42,385
But the main consideration with Sole Trader status is that the individual is personally responsible for any losses the business incurs. It is also important that the Sole Trader has appropriate business insurance in place.
Setting up a new Limited Company (known as ‘incorporation’) is certainly a more complicated business model than Sole Trader. The Limited Company is a legal entity in its own right and the individual is a shareholder and director (And hence employee) of the business. Whilst this structure can protect the individual if the business suffers losses, there is a great deal more administration to consider, such as:
If the owner wants to draw a monthly wage from the incorporated business then they would have to keep a payroll system on a monthly basis.
The company is also subject to corporation tax on annual profits, so has to complete a company tax return.
Every year the business must also complete statutory accounts and complete an annual return for Companies House. Most individuals choosing to incorporate would have to utilise the services of an accountant or bookkeeper in order to deal with the additional administrative burden – hence additional costs for the business.
And finally the director of the business would also have to complete a Self-Assessment tax return each year.
So, as you can see the are various pros and cons to registering your business as a Sole Trader or Limited Company, but as well as this, there are other models available. You could also choose to register your business as a Partnership or one of the different types of non-profit organisations, sometimes known as Social Enterprises, if these fits!
As there are so many things to think about before deciding what will be the best legal structure for your new business, it’s always best to seek help for a Business Adviser before making such a decision! Luckily, if you are a woman living in Merseyside, The Women’s Organisation we can help you make this decision through our Enterprise Hub programme, as well as accessing a full range of other business support!
If you’d like to get in touch with us and get some help making this decision, or find out more about how we can assist you with your business, drop us an email on firstname.lastname@example.org or ring us on 0151 706 8111