Ever pondered the idea of becoming self-employed and indeed a highly successful business person? Read here how Rapid Companies can help you achieve this.

Many of us, during the course of our working lives, have pondered the idea of becoming self-employed and indeed some highly successful business people suggest it is something we should all try. Promotion prospects, benefits packages, stability, finances and social interaction with colleagues all have to be weighed up before breaking your career to take on the responsibility of running your own business.

So, after due consideration, you decide to make that leap of faith and take on the responsibility of running your own business; what form of self-employment should you choose?

You might choose the “Sole Trader” business type. Why? Well, you may have decided to buy a business as a going concern through a business transfer agency (much like an Estate Agency but specialising in the sale of businesses and business premises) and you will probably run the business along the lines of your predecessor; at least till you get on your feet.

Being a Sole Trader gives you independence, the record keeping is straightforward, there is no reporting to do (unless you are VAT registered) and, probably most appealing, the net profit is yours. Your Accountant will calculate your net profit at the end of your trading year and it is this figure that decides the level of tax due to HMRC.

There are disadvantages in the Sole Trader business type and the one that stands out is debt! The business and the Sole Trader are indivisible and any debts owed by the business are the responsibility of the owner.

So, is there an alternative? Yes! You might wish to consider a private Limited Company (“private” in the context of the way shares are issued: only PLCs may invite the public to subscribe for shares). A Limited Company, as I will refer to it from hereon, has the benefit of being registered with Companies House and therefore the name of your business is protected.

Reporting is more prominent in the life of a Limited Company than for a Sole Trader business but because of this, there is perhaps a little more kudos from a Limited Company, especially in your dealings with banks. The same could apply to your dealings with other businesses that might carry out a search on your company, via Companies House or some other UK company information providers, who, incidentally, will source their data from Companies House.

Every registered company must file accounts and an Annual Return, even if there has been no trading activity at the date the reports fall due. It is upon this data that another firm considering doing business with you might base its opinions. A Limited Company is subject to Corporation Tax and, in addition to its obligations to Companies House, must also file an annual Corporation Tax return. The Government’s drive to discourage paper filing highlights the relevance of the role of an Accountant in your business, as they will be geared up to file your accounts on-line on your behalf.

You can also elect to become an employee of your own company ensuring a continuation of your PAYE and National Insurance payments. Probably the major difference between a Sole Trader and a Limited Company is the level of risk to personal finances.

A Limited Company is an entity in its own right and the beneficial owner’s liability towards any debts incurred or in the event of the company’s failure is limited to the amount paid into the share capital of the company, which is always clearly recorded from the point of incorporation.