Are you thinking of starting a business in the UK? If you’ve answered yes to any of the above, then this post is for you. Starting a business in the UK is quite straightforward. However, it does mean deciding what business entity you should choose.
Each type of business has different legal forms, but there are also different tax consequences waiting for you after choosing one form over another. For example, if you decide to go with a sole trader or partnership, it is possible to save money on tax in most cases, but be mindful of the administrative costs, particularly if you are just starting out.
Below we look into the different forms of businesses in the UK to give you a better idea of what you’re getting yourself into.
Business types in the UK
A sole proprietor is a person who owns his entire business. Such self-employed people are also known as freelancers. They sell the skill, talent and knowledge and enjoy total discretion for making decisions regarding the functioning of their business and its policies.
If you are a freelancer or self-employed business owner with a business address in the UK, it may be worth considering becoming a personal service company. This status will have advantages for tax, national insurance and being able to claim expenses for vehicles, i.e. fuel, tolls, parking tickets etc.
A business partnership is when two or more people join together to share the profits and losses of a business. The profits and losses are shared equally between the partners.
These people are both owners of the business in their own right, sharing the cost, responsibility and profits of the business equally.
Public Limited Company
Public limited companies, as the name suggests, are companies listed on the stock market and whose shares can be publicly traded. They are companies of a certain size with a minimum share capital requirement of £12.5 million, though many larger PLCs have much higher capital requirements.
Which type of business structure should you choose?
Choosing the right business model is one of the most important decisions you will make for your company, yet there are so many choices out there, it can get overwhelming. What form of business should your startup be? Freelance work? Limited company? Partnering with other companies? Subcontracting jobs to other people? Franchising your business idea?
As you can see, there are many different types of business structures, and it can be confusing to figure out which one would be the best for your own situation. It’s important to understand this because this will directly affect your tax liability and how much capital gains tax you may have to pay in the future.
One of the most popular business structures among startups is incorporation because it provides a certain level of legal protection which wouldn’t otherwise be available.