The Fixer: Going self employed
It can seem impossible to get a fair result when you are battling a financial issue alone. But never fear! The AOL Money Fixer is here to help.
Having recently been made redundant by the consulting company I have worked at for the past 10 years, I have decided to become self employed and see if I can make a go of consulting on an independent basis.
I have a bit of cash set aside from my redundancy payout to help with set up costs. However, I am unsure whether I should set up as a sole trader or as a limited company.
Can you explain the advantages and disadvantages of each? Thank you in advance for your help.
D Peters, Bristol
Dear Mr Peters,
Most businesses in the UK are structured as sole traders, limited companies or partnerships, and there are pros and cons to each option.
One advantage of being a sole trader, for example, is that all you have to do is to register as self employed and pay income tax via an annual Self Assessment tax return.
Set up a limited company, on the other hand, and you will have to pay Corporation Tax on your profits, although you will benefit from extra protection such as not being held liable for debts run up in the company's name.
Basically, the decision depends on how you expect the business to go and whether you expect to employ people in the future - although there is nothing to stop you setting up as a sole trader and then creating a limited company later on, for example.
Just remember that working from home as a sole trader often means taking out extra cover for your office equipment, while you will also benefit from public liability insurance if you deal with clients in person.
For more advice, it is worth visiting the GOV.UK website.
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