Sole trader versus company

I don't know if there is necessarily a when I think it depends on which set up is best depending on circumstances. I know there are different tax implications a company can pay divided which are taxed less than wages they have different types of national insurance to pay, I think companies have to file accounts at companies house and sole traders produce less detailed accounts that dont have to be filed. They have different levels of liability if things go wrong I think too.

Im sure someone will be along with a better overview but those are some of the difference im aware of.

The main difference is that with a sole trader business, you are personally liable for any debts incurred but you also personally own any assets. A limited company is a completely separate legal entity to yourself and the assets and liabilities are the responsibility of the company rather than with you, so generally speaking, if the business fails you wouldn't be personally liable for any unpaid debts (it's known as the veil of incorporation).

There are tax differences - a lot of people incorporate a limited company rather than have a sole trader business as it can be beneficial from a personal tax perspective, but there are also other tax requirements involved with a limited company (e.g. corporation tax) which you don't have with a sole trader.

Its usually for taxation purposes becoming a company can open up some tax relief.

A sole trader doesn't ever 'need' to become a company.

There are quite a few reasons someone might become a ltd co.

1. Tax reasons- to save tax as their sole trader business makes lots of profit and they pay lots of personal income tax. They might change to become ltd to try and remove money from the business in more tax efficient ways. Normally they need to factor in the cost of paying an accountant versus the tax savings they would make.

2. They may want hi seperate themselves from the business legally. As a sole trader the owner and the business are as one, and so any money and debts is also as one. As a ltd co the owner/director is an employee of the business and so becomes a seperate legal entity. If the co many takes on debt it's in the company name. Same for accounts with suppliers. Although, most financial organisations will make the director sign a personal guarantee against the debt anyway.

3. Some organisations will only offer work to ltd companies as they are registered, rather than give it to some traders. It's daft but it happens.

4. Some people also have the misconception that they need to become a company in order to employ staff, which isn't true.

Companies file accounts with companies house, whereas some traders just do a tax return to hmrc.

Companies accounts are then available in the public domain.

Many thanks all, that was fabulous information?