One of the main things to think about when you start your business is, should I become a company?
There are a few points to consider, one size does not fit all.
- What is the anticipated size of my business?
- Do I have other income?
- Is limited liability (protection if something goes wrong, or debts can’t be paid) important to me?
- What does my public image need to be, i.e. do I need to be a company to tender for contracts I want?
- Am I comfortable with certain information being on public record?
- What are my future plans for the business, i.e. will I be looking to invite other investors in down the line?
These are just a few factors that have an impact on the eventual answer.
In the past, choosing a company rather than becoming a sole trader, simply for tax reasons, was a relatively straight forward decision once the business became a certain size, however now, as tax rates have changed, other factors become more important.
On the whole, companies are designed for slightly larger businesses, however, that isn’t to say in your specific circumstance, a company would be the wrong choice even if your business is small. A company could be a way of keeping you out of higher rate tax.
A company structure also provides an opportunity for some forms of tax planning that a sole trader wouldn’t, such as dividend planning, company vehicles and pension planning.
Even if you chose to start as a sole trader, you can always become a company (incorporate) later, which in itself, can lead to some tax advantages.
Unfortunately, there is not a definitive answer, other than “it depends”. I would recommend that you seek personalised advice for your own situation.