Choosing a company structure

Limited company

A limited company is a business that’s seen as being completely separate from the owner, which means that there isn’t as much personal risk as some people may think.

It’s an ideal route for those who wish to have complete control over a business and their career, are in it for the long term, expect to earn over £25,000 per year and are happy to take on the additional responsibilities that come with running a company.

Some of these responsibilities include:

• Following the company’s rules, as is shown in its ‘memorandum of association’ (a legal statement signed by all initial shareholders or guarantors agreeing to form the company) and ‘articles of association’ (written rules about running the company agreed by the shareholders or guarantors, directors and the company secretary).
• Keeping company records, including accounts and details of shareholders/directors/company secretaries etc.
• Reporting any changes, such as a change of business address or if you’ve appointed an accountant for example.
• Filing accounts with Companies House and complete a self-assessment tax return.
• Paying Corporation Tax.

Take a look at our Should I set up a Limited Company? page for more information.

Limited Liability Partnership

Similar to a limited company, a Limited Liability Partnership (LLP) is when two or more people come together to run a business.

Many people will choose to join up with a business partner to not only put their skillsets together but to spread the level of risk too.

An LLP must have at least two ‘members’ and if there are more than this, then there will always be two designated members who will have more responsibilities than the others, such as registering the business with HMRC and keeping accounting records.

To read more about how running an LLP works, take a look at our Limited Liability Partnerships page.

Sole trader

A sole trader runs their own business as an individual, however, unlike a limited company contractor where you would be seen as a completely separate entity to the company with a separate bank account etc, a sole trader will be personally liable for any losses incurred.

As a sole trader, your responsibilities include:

• Keeping business records and proof of expenses.
• Filing your self-assessment tax return.
• Registering for VAT if your turnover is over £85,000. Our Sole Traders and VAT page will provide more information on this.

You may find our Sole Trader Take Home Pay page useful if you’re thinking of this route.

Umbrella company

Many people will choose the umbrella route as it can seem like less of a leap into self-employment compared to other avenues.

An umbrella company will employ a temporary worker on behalf of an employment agency and the agency will then provide the services of the worker to their clients – it is effectively the ‘middleman’ between an umbrella company and their client.

As an umbrella company contractor, you will have the freedom and flexibility that comes with being self-employed combined with some employee advantages too, such as holiday pay, annual leave and not having to file your own taxes.

You won’t however, be entitled to certain self-employed benefits, such as business expenses.

Our Umbrella Take Home Pay provides more information on this.

We hope you found this page helpful. Our team of experts are available to answer any queries you may have, so drop us a line on 01442 795 100, email sophie.lewis@dolanaccountancy.com, or contact us via live chat.