Limited company or sole trader

The advantages and disadvantages of whether to use a limited company or sole trader to start a business is an important consideration.

First of all, there are two types of limited companies. A private limited company and a public limited company. Registration of a private limited company is relatively straight forward. You only require one person to set up the company. You can be the director and shareholder of the company. In addition, your share capital can be as little as £1. That’s all you need to get started.

On the other hands, incorporation of a public limited company has more legal administration requirements to it such as you cannot trade until you get a trading certificate. Furthermore, a public limited company requires a minimum share capital of £50,000. It is a bit expensive.

Whereas compared to setting up a sole trader business, the setup is simpler. You only need to register your business with HM Revenue and Customs. Then you are good to go.

Limited liability

In terms of business liability, your company shoulders all the liability as opposed to the person running the business. This is because the company and the owner of the company are considered a separate legal entity. Your liability is limited to the amount you invested in the share capital of your company. This includes any guarantees you gave when raising finance for your business.

For example, if you invested £10,000 into your company as share capital and your losses would be limited to this amount in the event of your business failed. In other words, your maximum loss would be £10,000. That’s it.

As with a sole trader or proprietorship, you are exposed to unlimited liability. In other words, your personal assets can be auctioned to pay off your business debts if your business fails.

For instance, when your sole proprietorship business failed and you have a business debt of £100,000. You would have to satisfy this debt using your personal assets no matter what. You may risk being sued bankrupt if you cannot settle the debts quickly. In this respect, a sole proprietorship is a bit risky compared to trading using a company. There is no safety net. Basically you can lose everything at once.

Continuity

Moreover, trading as limited company also provides continuity of the business. The ownership of the company can be transferred easily. In this circumstance, you only have to transfer your share to your next of kin by filing the relevant Companies House forms to that effect.

Whereas for sole proprietorship business normally ceases when the business owner wants to retire or die. However, there may be a way to keep your sole proprietorship business continuity by incorporation.

Company Law

Besides, the Companies Act 2006 have made the requirement to appoint a company secretary for a private limited company is optional. This means that a single person can set up a limited company by himself as discussed above. You can be the sole director and also the sole shareholder of your company if you wish. Except that you must not be an undischarged bankrupt or disqualified by a court from holding a directorship.

On the other hands, as a sole trader, you do not need to comply with the company law. Less hassle.

Stability

Also, many financial institutions, banks and suppliers viewed a limited company as being a form of more stable business entity compared to a sole trader. This is partly because the company accounts, shareholders and directors details are available for public inspection independently at Companies House. This provides more reliable information to creditors about your company history.

On top of that limited company must follow company law when comes to filing Companies House forms and accounts with the Registrar. There is a set of standards maintained.

Administration

For administration purpose, a limited company must deliver confirmation statement and company accounts to Companies House every year. Also, you must maintain statutory books for your company. This includes notifying Companies House when there is a change in the registered office or director etc. You can notify Companies House by filing the correct forms online or on paper. You would require your authentication code to file online. The authentication code is the electronic equivalent of your director and secretary’s signature. Keep it safe.

Additionally, failure to fulfil the legal obligations mentioned above, your director is risk being prosecuted and are subject to fines. There is a late filing penalty for delay in filing your accounts to Companies House too. However, Companies House sends reminders to your registered office to help you (as the director) to comply with the law. Just make sure your registered office address is up to date. Do not worry too much.

To top it up, your company must submit a corporation tax return with HM Revenue and Customs. Your accounts must comply with the Companies Act. In some instances, you must submit audited accounts.

Whereas, for a sole proprietorship, you only required to file self assessment return with HM Revenue and Customs. Furthermore, the accounts are also much simpler compared to that of a limited company accounts.

Conclusion

Considering a limited company or sole trader to start a business, it has become obvious that a limited company is more attractive. Not only It gives a professional image but also project stability to the public. Additionally, using a company to trade also limit your liability and debts in the event of winding up.

Seek advice on complex tax affairs

However, if you have complex tax affairs seek advice from the specialist tax advisers. They would assess your personal tax affairs thoroughly and present you to the best solution that would minimize your tax liability overall.

For example, should you buy an asset under your personal name or under your company name? Given you have income from overseas or are inheriting assets. All these have an impact on your overall tax liability. For this reason, we highly recommend you get a specialist tax advice.

Power of 8

Power of 8, what does this means? a business coach said usually people give up after two attempts. He further said you are likely to succeed if you attempt 8 times or more.

When I think of the number 8, I am thinking it represents prosperity and wealth. If you put the number 8 horizontally, the number 8 becomes the symbol of infinity. Infinity means limitless, bottomless, endless. Infinity of wealth is great.

I do think the power of 8 has its power. Personally, I like number 8 because it has no sharp edges on the number. To me, it represents smoothness and smooth is good in personal life, career life and business life.

I did attempt something 16 times previously to get what I want. Something that I never done before and I have no clue where to start either. The duration to get what I wanted was 3 years. First, I made the decision to go through the process. I had my super big WHY. This big WHY is very important and it helps you to hang in there when you fed up with life and wanted to give up. Your big WHY has to be super big that it overrides your fear.

Guard your heart, everything you do flow from it

There is a famous quote “guard your heart, for everything you do flow from it.” This is so true. First, you have to decide the path you are going to take. Thereafter, your thinking and actions will come naturally to support your decision.

Let me share with you a true story. A child wanted to join her mother on a mountain hiking trip. Her mother said she was too young (at that time) maybe when she was older. This child has never done any mountain climbing before nor her mother but she strongly believed that she can do it.

A year from that conversation, every year she reminded her mother she wanted to climb that mountain. She went on and on about it. She developed her mountain climbing skills by watching people shared their experiences on YouTube and also watching movies with hiking scenes. Cleverly, she noted down things that she thought would be useful for her hiking trip. She showed her mother the list of items she would need for the mountain hiking trip like the torch, the rain coat, mosquito repellant, snacks, socks and her handwritten list was an A4 size long.

She acted as if her mother would definitely take her hiking. At first, her mother was actually reluctant to take her because she has a heart defect. Many people think taking her hiking is very risky to her health. The child was so determined that she sent out vibes that she would reach the mountain peak no question about it. Her mother saw her determination, she eventually decided to help the child to reach her life goal.

The truth was the child was talking about the mountain climbing trip for 6 years and finally, she did it. On the mountain, she did feel like giving up when the climb was getting tough and she was tired. Again she made the decision to keep going, one step in front of another till she reached to the peak. She understand her mind controls her body and therefore her mind rules over it all. She reached the altitude level of 4000m above sea level.

Later on, they found out there was a research on the impact of altitude on Children’s heart by a group of research cardiologists based in UK. They took children with healthy heart to the first base camp of Mount Everest at 3500m above sea level.

This proof that the child’s mind can over power her heart condition. The child was inspired by the famous quote by Scott Fisher in the movie of the Mount Everest – “ It’s not the altitude, it’s the attitude.”

The child subconsciously used the power of 8 to achieve her life goal. She had definitely talked about her hiking desire more than 8 times in those 6 years and lost count the number of times she revised her mountain climbing list.

Use the power of 8 in your business

Anthony Robbins’s inspiring quote “if you want to take the island, you need to burn the boat.” By burning your boat, the only choice you have is to succeed in taking the island. The power of 8 becomes very useful here until you succeed.

Work from home

Work from home is a popular choice when starting out a new business. Working from home is incredibly convenient if you are running an internet business. Your home is the place you have already and all you need is to find some space to set up your office at home. There may be distractions, but there are lots of good reasons to work from home.

Save office Rent when work from home

The money you save by not renting an office can be invested instead in technology, marketing and other things that build your business.

Commuting

Travelling a few feet in the office each day can make a refreshing change after years of catching the early morning train, tube or driving to work. You can work long hours for shorter days.

Flexible working hours

If you are the creative type, or just like to work at odd times, working from home means you can go into the office whenever you want.

Childcare

Working from home makes childcare a lot easier. It is also easier to fit your work around school drop off and pick up time.

Coffee shops

Even those with an office frequently choose to meet clients in a mutually convenient coffee shop like Starbucks or Café nearby. Use coffee shops to meet people. Most cafes provide free wifi so you can take your laptop and work there in between meetings.

Domestics Crises

Life is littered with domestic crises. It can be useful to be at home working during the day, even if it is only to let the telephone engineer in to fix your BT phone box or your boiler.

Comfortable

You can create a work-like environment, you can dress down as far as you like if you have no meetings with customers on some days.

Interacting with people and communication

You will undoubtedly have people who work with regularly or on a project basis. You can use live chat or conference calls such as Skype, Face Time or Video call to hold teleconferences.

Environment

If you like to listen to music no one will stop you. You can create your office environment the way you like.

Colds

You know when someone starts sneezing in an open plan office? Soon everyone is reaching for the tissues. Working from home can avoid all this.

Working from home gives you lots of freedom to do your own things but you must also have strong self motivation and self disciplined to build your business.

Starting a business guide

Starting a business guide to help you to get started with your business.

Starting a business is an exciting journey to embark on and it gives you a sense of total freedom. You tell yourself what to do and you are in control of your business and your time.

Here are the questions to help you get started with your business.

Step 1: What business structure is suitable for your business?

Choosing the right form of business structure when starting out your business is important. Considerations should include the legal, tax, and business administration aspects of the legal entity you are going to use.

  • Sole Trader or Limited company – suitable for one man business
  • Conventional Partnership or Limited Liability Partnership – if more than one person jointly interested in business

If you decided to use a limited company for your business, you may incorporate your company directly with Companies House or use an accountant’s service. Your company registration is usually can be completed within one business day.

Thereafter, remember to submit your confirmation statement and company accounts to Companies House on time.

Step 2: How are you going to finance your business startup?

Financing your business is another important thing in starting your business. The startup capital required is dependent on your business.

For example, if you can use your personal computer for the business you may not need to buy new computer equipment.

However, if your business required you to have an office then obviously bigger sum of startup capital is required as signing up for serviced office lease required at least 3 months rent deposit and 3 months rent in advance. Some commercial property agents may willing to negotiate the lease terms but you still have to prove that you are capable of paying the office rent.

You may consider using own cash/savings, loans from friends and family and you may sell your surplus personal assets for cash.

Borrow from banks and financial institution is another option. You will need to prepare a business plan to outline your business commercial viability.

Step 3: Who can help your business

Accountants can assist you to set up your accounting records system right from the beginning and advise on your business related financial matters.

Solicitors could advise you on your business contracts and preparing legal documents for you.

Business Link. It is a UK government supported organisation that provides useful information to businesses of all sizes.

Step 4: How much would it cost? – Accountants’ fee

Traditionally accountants charge their fee by the hour. There are also accountants offer fixed fee accounting services.

Whether a fixed fee or charge by the hour, ask for a couple of quotes to compare. Understand what included in the quote and what is extras.

If you intend to use a limited company for business, it may be a good idea to seek accountants’ advice as soon as your company have been set up.

Step 5: Do you have to register for VAT?

You are not required to register for VAT if your sales are below the VAT registration threshold or if you only make “exempt” or “out of scope” VAT products and services.

However, you may opt to register for VAT voluntarily if it is beneficial to your business.

Step 6: Should you rent an office or work from home?

Many startup businesses are run from home. There are benefits of working from home.

May be, consider taking up an office when your business can take care of itself – start generating sales and have sufficient cash.

Starting a business guide can be used as a checklist for your start-up business.

Now that you are ready to start your own business, may good luck and good fortune be your way. If you require any help please do not hesitate to contact us.

Pre-trading expenses

Pre- trading expenses and costs incurred wholly and exclusively for your business before you start trading can be offset against your company’s sales or income in the first year of business. This would reduce your income tax bill or your corporation tax bill that why you claim your pre-trading expenses.

You must prove that your pre-trading expenses were incurred within seven years from your first day of business and it would have been deductible as a business expense if it has been incurred after your business starts trading. You must keep the receipts and invoices of your pre-trading expenses in order to claim your claim.

Examples of expenses and costs can be incurred prior to commencement of business include:

  • Advertising costs
  • Wages and salaries
  • Rent and rates
  • Insurance for your business
  • Bank charges and interests
  • Lease rentals on plant and machinery
  • Computers equipment
  • Office furniture
  • Accountant’s fees for filing your confirmation statement and dormant company accounts.

Equipment and long term assets bought before the commencement of your business, it would be introduced to your business at the current market value and would be treated as if it was purchased on the first day of business.

Last but not least, If you have any questions about your pre-trading expenses, feel free to contact our London accountants.

12
%d bloggers like this: