Trading style refers to, the way in which you chose to set up your business and trade. Whichever style you decide is most appropriate for you and your business, it is important that you understand the implications and the requirements on you as a business owner.
Sole Trader
As a sole trader, you will let HMRC know that you are in business and report your income and expenditure from your business on a Self Assessment Tax Return. This is a simple way to trade, however it is important to understand that there is no legal separation between you and your business, this also includes business finances and liabilities. Therefore if in the future, your business gets into difficulty, you will be have to pay any liabilities from your personal money or assets
Partnership
A partnership may be established if more than one person wish to run a business together. A partnership is formed and the profits are split between the partners in the same percentage as agreed in the set up. A partnership return is required to be submitted to HMRC as well as individual returns. It is advisable to have a legal agreement drawn up. A partnership does not establish a separate entity from the business and therefore there is no legal distinction and personal assets are still at risk if things don’t work out for the business.
Limited Company
When setting up a Limited Company, a separate entity is created from the owner of the business. This means that the Company is responsible for it’s liabilities separately and unless a personal guarantee is given for any lending (or any fraud) then you will not be personal liable for any liabilities in the event that the business fails. Limited liability should be your prime motivation for choosing this trading style.
Generally, for our audience, a Company will be limited by shares. The company is owned by the shareholders, shareholders receive the profit after tax by way of a dividend. The company is run by directors, who are employed by the company. It is possible for the same person to be a shareholder and director and for a company to be run and owned by a sole shareholder/director. If you trade as a limited company it is important to understand how any income you receive from the company is accounted for, whether it be paid to you as an employee (director) or as a dividend for your investment (shareholder)
A Limited Company must report accounts and other information to Companies House and also HMRC, directors and shareholders are often also required to submit a personal Self Assessment Tax Return depending on how much income they receive from their directorship and/or shareholding
Landlord
It is possible to hold your rental property in a Limited Company, you should take professional advice if considering this. If you hold your rental property in your own name/s then this income will be declared on your Self Assessment Tax Return as well as any gain when you come to sell your property/s