Choice of Trading Vehicle
by Startacus Admin
Richard from Simplicity Accounting, a Belfast based Accountancy firm give Startacus (and all you good folk) some handy pointers on choosing your business trading vehicle. Over to Richard to explain.
Choice of trading vehicle?
First of all you may ask yourself, “what on earth is a trading vehicle?” Your trading vehicle is the legal status of your business, and beyond matters of 
the law, it is also significantly a determining factor in the tax rules that apply to your business.
Your “trading vehicle” is a matter of choice, the options being dictated by whether your business is just yourself, or whether you are working alongside somebody else (a business partner rather than an employee). There are pros and cons for each option, and these should be weighed up before making your choice.
Working by yourself
If your start up business is just yourself, the choice of trading vehicle boils down to two options: either a sole trader or a Limited Company.
With a Limited Company, your personal assets (such as your personal savings and house) are protected in the event of business failure and a broader range of tax planning options are available to you. Very importantly for business start ups, is essential to be a limited company to be able to be granted Enterprise Investment Scheme (EIS) approval (which would offer individuals tax incentives to invest in your business). There is often a prestige attached to trading through a limited company and it may help with your business image and (unfairly) improve your chances of being successful in a finance application.
If you trade as a sole trader, you do not enjoy the benefits mentioned above, however you have lesser administrative burden to comply with. Although you still have to prepare annual accounts to calculate your tax liabilities, these do not have to be filed on a public register and can be prepared to a slightly lower standard.
Working with a partner
When working with a partner, you are faced with three choices of trading vehicle: a partnership, a Limited Liability Partnership, or a Limited Company.
Working as a Limited Company has the same pros and cons as mentioned above, and a partnership is basically the equivalent of each partner being a sole trader, so also has the same pros and cons. The main difference between a partnership and sole trader is that there is a slightly increased administrative requirement as you will have to draw up a “partnership agreement” to document each partner’s responsibilities and to agree the proportion in which partnership profits are shared. Also, in addition to your personal tax return, a partnership tax return has to be completed, and submitted.
A Limited Liability Partnership (LLP) is a compromise between a partnership and a Limited Company, enjoying the same legal protection as a Limited Company (with a similar administrative burden), yet being treated in the same way as a partnership for tax purposes.
Summary
The choice of trading vehicle is an important one and should be considered at the outset of a business to avoid the complications of changing at some point in the future. Of particular benefit, particularly to high risk start ups, is the protection of personal assets granted by Limited Companies, but you must be prepared to comply with the administrative obligations, and it should be noted that this legal protection does not apply if you behave recklessly.
Practical considerations should always take priority over those of taxation, but it should be noted that there are more opportunities to reduce tax through a Limited Company, and furthermore, a Limited Company is attractive if you plan to raise capital by attracting investment from private individuals, and your business qualifies under the Enterprise Investment Scheme.
E: richard@simplicity-accounting.com
W: www.simplicity-accounting.com
If you like what you see here on Startacus, why not become a member of our growing community? It's free! And you'll get all this - exclusive access to our Business Toolkit, discounts and offers galore for your business via our member only business deals, the chance to network and connect with loads of fellow self-starters, and maybe even become our celebrated 'Self-Starter of the Week' and tell the world your startup tale! Join right here for free
Subscribe to our newsletter
If you would like to receive our startup themed newsletter, full of the latest startup opportunities, events, news, stories, tips and advice, then sign up here.
The GCHQ Innovation Co-Lab is on the hunt for companies harnessing data science, machine learning and AI techniques to create real products and solutions.
Eppik is a smart family photo sharing platform that helps families reconnect through their shared photo heritage
New targets set by 30% Club aimed at achieving both gender diversity and fully inclusive cultures on FTSE Boards, Executive Committees and Chair Appointments
Xero’s Roadmap to Recovery manifesto launched as new data confirms impact of COVID-19 on UK small business revenue and employment
In this article, we’ll be exploring how new users can build their first Magento store and drive it towards online dominance.
BOOP, an innovative software education platform for children with special education needs, gains COVID-19 response funding of £50k via Innovate UK
Here are some easy-to-overlook ways to slash the usual cost of sourcing a corporate car for your business.
The shortlist for this year’s Postcode Lotteries Green Challenge, a global annual sustainability competition is out, with 7 of the 25 shortlisted from the UK
Post Covid, these could be some of the shared economy trends that businesses will be looking to capitalise on in the coming weeks and months.
Launch of new fund by Innvotec aimed at investing in UK female founded or co-founded enterprises whilst also encouraging more women to invest in startups
Published on: 1st December 2013
.png)
If you would like to enable commenting via your Startacus account, please enable Disqus functionality in your Account Settings.
- GCHQ Innovation Co-Lab seeks startups harnessing data science, machine learning and AI 2nd Jul 2020 The GCHQ Innovation Co-Lab is on the hunt for companies harnessing data science, machine learning and AI techniques to create real products and solutions.
- Ten Years On: 30% Club Sets New Targets 1st Jul 2020 New targets set by 30% Club aimed at achieving both gender diversity and fully inclusive cultures on FTSE Boards, Executive Committees and Chair Appointments
- Xero’s Roadmap to Recovery manifesto launched 1st Jul 2020 Xero’s Roadmap to Recovery manifesto launched as new data confirms impact of COVID-19 on UK small business revenue and employment
- 7 British startups shortlisted for Postcode Lotteries Green Challenge 30th Jun 2020 The shortlist for this year’s Postcode Lotteries Green Challenge, a global annual sustainability competition is out, with 7 of the 25 shortlisted from the UK
