So you’ve taken the bold decision to turn your passion into a viable business proposition. Next you’ll need to decide whether to set up a new limited company, or register as self-employed. If you do choose to go self-employed, this could be either as a sole trader, or as a partner in a partnership.
There are advantages and disadvantages to each route, so it’s vital to understand what each avenue can offer you.
If things go slightly off-piste and your business venture falls flat on its face, your personal belongings are off-limits, meaning that they can’t be seized to cover losses.
On the flipside, there’s more paperwork to consider when registered as a limited company, which means you may need to hire an accountant, which will cost you extra money. Information about yourself, company directors, accounts and annual returns will also be publicly available through Companies House.
On the surface it might appear that things are generally easier when registering as a sole trader. For starters, there’s a lot less paperwork to contend with, and you can pretty much handle most of it by yourself. Setting up as a sole trader is super simple too. All you need to do is contact HMRC tell them you wish to go self-employed, then begin trading straight away. Another advantage is that information on your business isn’t required to be in the public domain, so it can’t be accessed from Companies House or services like Duedil.
However, sole trader businesses are not recognised as a separate legal entity. If the business fails with debts to be paid, not only will you lose your income but you’d also have to pay the money owed from your assets, whether or not they’re connected to the business.
In a partnership, multiple people means more input into company decision making and brainstorming, which means more pressure off you.
You may think that partnering up lessens the amount of paperwork you need to juggle – think again! Individuals must submit the relevant documentation, but so too must the ‘lead partner’ who submits information on behalf of the partnership as a whole.
Whatever path you choose to go down, don’t rush it, as there’s no right or wrong answer. And don’t forget that you’re not bound by your decision. If you start out as a sole trader, and later down the line decide you want to form a limited company, you’re entitled to do so.
KashFlow is simple accounting software that works how you’d expect it to work, without using confusing jargon or complicated processes. You can manage your business finances from anywhere and create professional, branded quotes and invoices in minutes. For a free no-obligation 1-2-1 demo just call the KashFlow on boarding team on 0844 815 5779.