What’s the Best Company Structure for You?
Haggards Crowther Chartered Accountants
We help businesses fulfil their growth potential and individuals maximise the value of their income
Starting or growing a business is an exciting step, but deciding on the right company structure can feel a little daunting. With several options available, each with its own pros, cons, and tax implications, it’s important to find the one that works best for you.
What Types of Business Structures Are There?
In the UK, the four most common business structures are:
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·??????? Sole Trader
·??????? Partnership
·??????? Limited Liability Partnership (LLP)
·??????? Limited Company (Ltd)
Let’s break them down and take a closer look at each one.
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Sole Trader: Is This the Right Fit for You?
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A sole trader is the simplest and most straightforward business structure. It’s ideal for individuals working for themselves—whether you’re a hairdresser, freelance graphic designer, or blogger, for example.
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Why Choose Sole Trader?
Pros:
·??????? It’s easy and inexpensive to set up compared to other structures.
·??????? There’s no need to register with Companies House.
·??????? You have complete control over all decisions.
·??????? It can be the most tax-efficient structure when withdrawing all profits within the year.
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Cons:
·??????? You’re personally responsible for any business debts (unlimited liability).
·??????? Securing funding can be more difficult.
·??????? Unable to implement tax planning.
How Does Tax Work?
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·??????? You’ll pay Income Tax on your profits through a Self Assessment tax return.
·??????? Depending on your profits, you may need to pay Class 2 and/or Class 4 National Insurance Contributions (NICs).
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o?? Profits below ￡6,725: no Class 2 NICs (though you can pay them voluntarily).
o?? Profits above ￡12,570: Class 4 NICs apply.
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·??????? You can offset business expenses to reduce your taxable profit.
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If you’d like to explore this option further, check the GOV.UK guide on sole traders.
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Partnership: Sharing the Load
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A partnership is a business run by two or more people who share responsibilities, profits, and decision-making. It’s a great option for those who want to share the workload and risks while working together towards a common goal.
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Why Choose a Partnership?
Pros:
·??????? Responsibilities, risks, and costs are shared.
·??????? It’s straightforward to set up and doesn’t require registering with Companies House.
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Cons:
·??????? All partners are personally liable for business debts (unlimited liability).
·??????? Disputes between partners can cause complications.
·??????? Unable to implement tax planning.
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How Does Tax Work?
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·??????? Each partner is taxed individually, filing their own Self-assessment.
·??????? You’ll pay Income Tax and NICs on your share of the profits.
·??????? Partnerships are not subject to Corporation Tax.
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For more details, visit the GOV.UK partnership guide.
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Limited Liability Partnership (LLP)
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An LLP offers the flexibility of a partnership while protecting the personal assets of its members. It’s a popular choice for professional groups like solicitors, accountants, or architects.
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Why Choose an LLP?
Pros:
·??????? Members enjoy limited liability, meaning personal assets are protected.
·??????? It’s often seen as more professional and credible than general partnerships.
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Cons:
·??????? Registration with Companies House is required, adding paperwork and costs.
·??????? Annual accounts must be filed, which adds administrative responsibilities.
·??????? Unable to implement tax planning.
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How Does Tax Work?
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·??????? Members are taxed as self-employed individuals, paying Income Tax and NICs.
·??????? LLPs are not subject to Corporation Tax.
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To learn more, visit the GOV.UK guide on LLPs.
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Limited Company (Ltd)
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A limited company is a separate legal entity from its owners, offering limited liability to shareholders. It’s a good choice for businesses looking to grow, attract investment, or establish a professional reputation.
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Why Choose a Limited Company?
Pros:
·??????? Shareholders are only liable up to the value of their shares (limited liability).
·??????? Often seen as more professional and credible.
·??????? Can be more tax-efficient for larger profits.
·??????? Able to implement tax planning.
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Cons:
·??????? Registration with Companies House is required.
·??????? Annual filings, accounts, and Corporation Tax returns must be submitted.
·??????? Administrative costs and public financial disclosure are necessary.
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How Does Tax Work?
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Profits are taxed at the Corporation Tax rate, which is currently 19% for companies with profits of ￡50,000 or less, and 25% for companies with profits over ￡250,000. Companies with profits between ￡50,000 and ￡250,000 are taxed at the main rate, reduced by marginal relief.
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Dividends paid to shareholders are taxed separately, but paying dividends can often be more tax-efficient than taking a salary. Directors can optimise their personal tax by combining salary and dividends effectively.
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For more details, check the GOV.UK guide on limited companies.
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Still Not Sure Which Structure Is Right for You?
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Choosing the best structure depends on your goals, financial situation, and future plans. If you’re feeling unsure, we’re here to help.
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We can offer tailored advice based on your circumstances, guide you through the setup process, and even handle the paperwork—leaving you free to focus on your business.
Get in touch with us today and let’s make your business journey as smooth as possible.