2 June 2023
4 min read
Please be aware that this is a guide only and you should seek specific advice for your business*
Being a sole trader is one of the most common business structures in the UK, owned and operated by a single, self-employed person, you run your business for yourself and are responsible for fixing any problems and debts, have several customers, provide your own equipment and charge an agreed price for your work.
Being a sole trader can prove to be a flexible way of setting up a business with fewer costs than running a limited company and can be suitable for a range of different professions.
To register as a sole trader, visit the HMRC website
As a sole trader you can decide to keep all your business’ profits after you've paid income tax, any National Insurance and student loan payments that are due. It is important to maintain accurate records and expenses.
Sole traders are not taxed via the Pay As You Earn (PAYE) scheme and are responsible for managing their own taxes and Self-Assessment. Many hire an accountant to do this for them.
If your sole trading income exceeds £85,000 (figure correct as of May 2022) you'll have to submit a VAT return too.
HMRC has a calculator to help you budget for your tax payments as a sole trader.
Setting up as a limited company is a more formal business structure and can offer a degree of protection to its members, namely the shareholders and director(s).
Operating your business as a limited company means you are treated as legally distinct to the company itself.
So if the company has debts, creditors can legally pursue the company, but not you, for repayment. Your personal assets are not at risk. However, if one or more of the directors have signed a director's guarantee to secure credit, then their personal assets may be at risk.
You must register your limited company with Companies House alongside registering with HMRC.
The additional information you will need to register as a limited company includes:
All shareholders are required to agree and sign a memorandum and articles of association, which serves as your agreement to run a business and sets out rules for how the business operates.
You must also register your limited company for corporation tax, you need to do this within 3 months of starting your business.
You will also be required to file a Confirmation Statement with Companies House. These are normally due within 28 days of the first anniversary of incorporating your business.
Limited company shareholders, including sole directors, can draw dividends from the profits of their limited company.
In a partnership, you and your business partner register with HMRC separately, but as part of the same partnership.
One nominated partner must be responsible for managing tax returns and business records.
Partners can share the profits between themselves and will be responsible for paying income tax on their earnings.
Partnerships share some benefits with the sole trader set up and some with the limited company set up.
You can be a co-operative either by being a co-operative society or a community benefit society. A co-op is a business or organisation that's owned and controlled by its members, to meet their shared needs. The members can be its customers, employees, residents or suppliers, who have a say in how the co-op is run. Members choose what to do with profits, whether distributing among members, reinvesting in the business or giving back to the community. Every co-op across the world shares the same co-operative principles and values. For more information and advice on the forms that co-operatives take, see: https://www.uk.coop/start-new-co-op/start/choosing-your-legal-form
All information stated is accurate as of May 2022.
*While all reasonable care has been taken to ensure that the information provided is correct, no liability is accepted by The Co-operative Bank for any loss or damage caused to any person relying on any statement or omission. This is for information only and should not be relied upon as offering advice for any set of circumstances. This is merely a guide and each business is unique in its requirements. Specific advice should always be sought in each instance. Co-operative Bank PLC is not authorised and regulated to provide accounting and legal services, and the information provided on this page is sourced from government websites. It is recommended that you seek professional advice on which company structure is most suitable for you and your business.