Sole Trader or company?
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We are often asked whether a business should start as a sole trader or limited company. This is a question asked by one of our new clients recently:
Do I need to set up a company?
Q: Up until recently, I was employed in a fairly well-paid job. However, I have left my job and started my own business. Do I need to set up a company? If not, are there any benefits of doing so now?
Denise, Worsley
Tax Efficient?
A: No, you are not obliged to form a company. However, business owners often choose to set a company up because they can be a more tax efficient vehicle to trade through. Furthermore, being a company makes the business look established and gives it status. And it gives the shareholders (the owners of a company) assurance that their liability is restricted to their investment in the event the company begins to fail to meet its debts.
Having said that, new businesses often generate losses in their early years of trading. If you believe your business will generate losses initially, you ought to consider remaining unincorporated. This would then allow you to carry back any losses against your employment income. If you form a company to trade through from the outset, any losses made by the company are confined to its affairs and cannot be used against your personal affairs.
Setting up in business can be an exciting but daunting time. If you would like some professional advice from your local TaxAssist Accountant, please feel free to contact us.
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