Setting Up

• Sole trader:

  As a sole trader, you will not need to notify Companies House, nor deal with any administrative or accounting requirements which are required of Limited Companies.

  If you start working for yourself, you must register with the Inland Revenue as self-employed, even if you already send in a tax return. There are some exceptions and special rules for particular industries, like the construction industry.

  You should register the moment you start out as a sole trader, otherwise you could incur a financial penalty.

  To register, you need to fill out and complete Form CWF1 from the HMRC site (PDF format).

• Private limited company:

  Aside from sole trader status, most small businesses set up as Limited Companies. The term ‘limited’ derives from the fact that the company’s finances are distinct from the personal finances of their owners (unlike the sole trader arrangement). Shareholders in limited liability companies are not responsible for company debts, although if required, directors may be required to guarantee loans or credit granted to the company. The higher level requirements for limited liability companies are as follows:

  • Company must be registered at Companies House
  
  
  • Annual accounts must be filed at Companies House
  
  
  • Annual Return must be completed each year to update Companies House with basic details relating to the company. Also requires a small annual fee.
  
  
  • Inland Revenue must be informed if the Company has any profits or taxable income in a Company year.
  
  
  • Company must complete an annual Inland Revenue corporation tax return and pay the due taxes within nine months of the Company year end each year.
  
  
  • Anyone employed by the Company must pay income tax and national insurance on their income.
  
  
• Limited Liability Partnership also known as LLP

  It is an alternative corporate business vehicle that gives the benefits of limited liability but allows its members the flexibility of organising their internal structure as a traditional partnership. The LLP is a separate legal entity and, while the LLP itself will be liable for the full extent of its assets, the liability of the members will be limited.
  
  Any new or existing firm of two or more persons can incorporate as an LLP.

  • LLP disclosure requirements:

  They are similar to those of a company. LLPs are required to provide financial information equivalent to that of companies, including the filing of annual accounts. Among other things, they are also required to: File an annual return