PLEASE NOTE: The charity TaxAid advises only those people on low incomes whose problems cannot be resolved with HMRC.

The structure of your business

Starting a new business

The main ways you can run a business are as an unincorporated business, for example as a sole trader or partnership; or by using a company. There are other possibilities such Limited Liability Partnerships and Community Interest Companies. It is best to take specific professional advice before making a decision.

A company is a separate legal person. You will normally be a director, employee and also a shareholder in your own company. You can take money out of your company as salary or by paying dividends.

If you are a sole trader or partnership, your business is not a separate person from you (in England and Wales). As a sole trader, you are taxed as a self-employed person on the profits. As a partner, you are taxed in a similar way to a self-employed person, but just on your share of the total profits of the partnership.

Some of the advantages and disadvantages of these various ways of trading include:

Risk Starting up Ongoing administration Flexibility Tax
Sole Trade Personal liability for business debts Fairly simple, but Professional help advisable With care, may be managed on your own. Professional help advisable Very flexible Relatively straightforward
Partnership Personal liability for business debts It is best to have professional help to set up a partnership You will normally need professional help Quite flexible Relatively straightforward
Limited Company Offers some protection from personal liability Quite complex – you will need professional help Complex – you will normally need professional help Less flexible Complex

There are other forms of business structure including limited liability partnerships and social enterprises. You can find out more about these on the Government’s services and information website at https://www.gov.uk/browse/business/setting-up.