Corporate Business Structures

Sole Trader

Being a sole trader is often referred to simply as being 'self-employed', though there are other forms of self-employment (such as being a contractor).

Sole trader is the most popular structure for a start-up, and also the simplest. You pay income tax on your profits (rather than corporation tax), so any profits above the higher rate threshold will be taxed at 40%, and profits above the additional rate threshold will be taxed at 45%. Depending on your profits, you may also have to pay National Insurance (NI) contributions.

Being a sole trader does not necessarily mean you work alone. You can employ staff, so long as you inform HMRC and follow employment law.

Advantages of being a sole trader

• As a sole trader you pay no fees to register, you have very little red tape
• You are in full control of business decisions
• You get to keep all the profits from the business, after tax
• Your business’ data is kept private (compared to other business types where data is visible at Companies House)

Disadvantages of being a sole trader

The main drawback is that your business and personal finances are not legally separate. This means that, if the business has debts or issues, any liability can be met from your personal wealth. This exposes you to more personal risk than other business structures, so may not be suitable for a high-cost start-up.

How can we help with sole trader bookkeeping?

If you operate a sole trader business, it is your responsibility to notify HMRC of your earnings, as well as pay all necessary taxes. Therefore, the following records must be kept and regularly filed in order to do this correctly:

• Invoices
• Expenses
• Profit

Not only do we assist in bookkeeping and preparing sole trader annual accounts, we also help with the set-up of new sole trader businesses, providing you with a strong foundation to build your brand upon.

Partnerships

A partnership business is a type of corporation where the owners have unlimited personal liability for the business. The owners also have a share in the profits (and losses) generated by the business.

In a partnership, a number of individuals sign a business partnership agreement to establish how the company’s ownership, profits and liabilities are shared between them, and how partners may leave the partnership.

A partnership is similar to the sole trader structure, except that there are at least two of you. There is no legal upper limit to the number of partners, though very large partnerships can be riskier to manage (see limited liability partnerships). Each partner registers as self-employed and submits a separate tax return. Your tax and NI obligations are similar to those of a sole trader.

Partnership business advantages

• The advantages of a partnership business are flexibility and simplicity, with the added bonus of having more owners to run the business.
• A partnership allows a business’ tasks/responsibilities to be assigned to each partner depending on their skills, which takes the stress off just one person.

Partnership business disadvantages

• In a partnership, all partners are jointly responsible for all the business debts. This means for instance that if one partner is sued successfully, all partners must share the damages.
• The possibility of disagreements/not being able to come to an agreement on how the business is run.
• Taxation laws say that all partners must pay their own tax, just like a sole trader would. Also if a partnership business obtains a certain level of profits, the partners may be faced to pay more than they would in a limited company.

How can we help with partnership accounting?

A partnership has many procedures and rules that must be followed. For example, a partnership business must prepare its own tax return, and declare any profits earned by the partnership on a personal tax return.

Tax returns can be an overwhelming process, so let Hysons, Chartered Accountants take away the worry of incorrectly completing them. By preparing end of year documents that provide you with statutory accounts and all required tax returns, you needn't worry about breaking any rules. On top of this, we will ensure you are aware of all deadlines and how to pay them.

We can also help with setting up a business partnership and registering it with HMRC, providing you with a strong foundation to build your brand upon and ensuring you follow all necessary regulations.

Limited Companies

A limited company is a business that limits the amount of liability undertaken by the company's shareholders.

Incorporating your business as a limited company requires you to register it at Companies House. This creates a separate legal entity, which is your company. Contact us for advice on how to set up a new limited company.

Advantages of a limited company

• The main advantage of setting up a limited company is that its finances are separate from yours. This reduces your personal exposure to financial risk, so if the business fails (or is sued) then you are liable only for the face value of your share in the business.
• Another big benefit is the tax regime: companies pay corporation tax at 19 per cent on their profits. This can be significantly more tax-efficient than paying income tax on income, especially for higher-rate taxpayers (though as a director you will still have to find a way to take income from the company, such as salary or dividends, which will be taxed accordingly).
• To set up a new limited company, you must register the company name with Companies House.
• This business identity is unique to you and will be protected from other businesses trying to use the same name.
• You have the option to offer company shares to your employees, which motivates them more and gives the chance to have a say in how the business is run.

Disadvantages of a limited company

• One downside is that a limited company involves much more administration.
• You must submit an annual company tax return and full statutory accounts to HMRC and are responsible for paying employees’ income tax and NI contributions too.
• Certain information on the company, its directors and shareholders is available in the public domain.

How can we help with limited company accounting?

After the end of a financial year, a limited company must supply HMRC with the following documentation:

• Full Statutory Annual Accounts
• Company Tax Return

Both documents take time and accuracy to complete, and can often be a strain on your business' resources as a result. Hysons specialise in filing all necessary accounts with HMRC and Companies House, while avoiding any potential penalisation from late submission. Furthermore, our business accounting services can help you set up a a new limited company.

Limited Liability Partnerships

Limited Liability Partnerships (LLP) are a flexible legal and tax entity that allows partners to benefit from economies of scale by working together while also reducing their liability for the actions of other partners.

An LLP is a popular structure for professional services such as accountancy and legal firms.

In most respects they are similar to ordinary partnerships but as the name implies they have limited liability (like a limited company).

An LLP must be registered at Companies House, and at least two partners must be ‘designated members’ who take responsibility for filing the annual accounts.

Advantages of Limited Liability Partnerships

• As with an ordinary partnership, each partner in an LLP registers as self-employed and submits a separate tax return. But if the business fails, each partner is only liable for the face value of his or her share.
• The liability of the business isn’t down to one single person, this includes financial issues and business responsibilities.
• The flexibility of what and how much each partner contributes to the business.
• Unlimited amount of business partners.

Disadvantages of Limited Liability Partnerships

• The administrative burden of an LLP is similar to that of a limited company, so an accountant and company secretary may be desirable (though not required by law).
• Bookkeeping and accounting of a LLP is more complex as you are required to keep accurate records as you go along and to submit a range of data each year.
• Certain information on the LLP, its members is available in the public domain.

How can we help with LLP accounting?

Accounting for Limited Liability Partnerships is a complex area that requires expertise and an established understanding of the business' structure.

To ensure these processes run seamlessly, Hysons, Chartered Accountants will assign an accountant dedicated to supporting your LLP. In addition to submitting your LLP's annual accounts, tax return, confirmation statement and self assessments, we will send you reminders of all deadlines of when accounts and tax returns are due to be submitted.

Your dedicated accountant will always be on hand to answer any queries, in addition to continually conducting tax efficiency reviews throughout the financial year to ensure your LLP is operating at maximum efficiency.

Why choose Hysons?

At Hysons, Chartered Accountants in Hampshire, we will be an extension of your business, enabling you to grow even further without the hinderance of compliance regulations and tax worries. By tailoring our solutions to best suit the needs of your business, you can trust your investment will yield great results both internally and externally. To find out how you could benefit from our sole trader, partnership, limited company and LLP accounting services, contact Hysons and book a free accounting consultation.