So you’ve decided to set up your own business. Firstly congratulations!

We understand the guts it takes to set out on your business venture and if you’ve not done this before, or maybe not been advised well in the past, this can be a little daunting.

At Insight Finance Solutions we really love working with people who are just starting out on their first business ventures. We believe it is always a good thing to be proactive and start your business on the right foot with good healthy finance habits.

So let’s start with this very important question;


Should I set up as a company or as self employed?


This is one of the most common questions we get asked, so what’s the difference? Here’s a run down of the key points to know:



Self employed

Key point: you and your business are the same thing i.e. there is no legal separation



The easiest solution on start up because it’s easier to understand:

– you’re taxed under ‘income tax’ i.e. the same way as employment earnings so it’s more familiar
– it’s cost effective as there are fewer set up costs outside of those directly related to your business e.g. equipment, premises etc
– there is less compliance i.e. you only get to register and comply with HMRC, most people can also complete their own personal tax return, or the costs of an accountant doing so are relatively low
– it’s easy to pay yourself from the business as you and the business are the same thing so all business assets e.g. cash and equipment belong to you



It’s not the most tax efficient structure, i.e. you are likely to pay more tax than if you were a company as you will be taxed on the total profits made by the business, regardless of how much you actually
pay yourself. Plus the tax rates are slightly higher than those of a company.


Because you and your business are the same thing, if the business is sued your personal assets e.g. house, car etc are at risk



Limited Company

Key point: you and your business are two separate legal entities



The company pays tax on it’s profits under ‘corporation tax’ and you will continue to pay tax personally under ‘income tax’ but only on what you are paid by the company, not the full company profits as with self employment:
– tax rates are lower for both the company and you personally so it is a more tax efficient particularly for self
– employed people who are paying tax at the higher rate as you and your business are separate, your personal assets are not at risk. If the business is sued, the amount it can be sued for is ‘limited’ to the assets of the company.



Compliance and cost:
– as the business is a separate entity, a ‘company’ it is required to be registered with Companies House.
Getting the company set up and registered can incur fees.
– information about the company is publicly available and can be accessed by anyone at anytime from the
Companies House website, this includes finance information.
– getting the structure of the company right from the outset is important and requires some guidance as future changes can be costly to make.
– company accounts are prepared in accordance with international accounting standards meaning they are
more complex (and costly) to prepare. A qualified accountant will be required to prepare and submit them.
– there are additional costs as two sets of accounts and tax returns get to be prepared and submitted: one set for the company and one set for you personally
– the money earned by the company belongs to the business and therefore isn’t yours to take as you please. A conscious payment structure is required.




Setting up as self employed is the easiest solution on start up because it’s easier to understand, more cost effective and there is less compliance.


The caveat is if you are in a particularly ‘risky’ industry e.g. construction, making children’s playground equipment etc where the risk of being sued is potentially higher. In which case the protection of a limited company would be beneficial from the beginning.


Most people start as self employed as it’s simply less overwhelming and more cost effective. It also gives you chance to get used to running a business and a much easier exit strategy if you decide it’s not for you.


On a day to day basis, very little is different, the main differences are to do with compliance and responsibility (most of which is just admin) accountancy costs and how to pay yourself from the business to which there are very simple solutions!


The natural progression is to then ‘incorporate’ i.e. start trading your business through a company, once it has grown, you have built up confidence and the tax savings become even more beneficial.


We promise you that the difference between being a sole trader and running a company might feel massive but it doesn’t have to be hard! It just requires more awareness and understanding and having some experience of running a business is definitely beneficial.


Need Some Support Building Proactive Business Finance Processes?


If you’ve just set up as a sole trader or are a recent limited company and you’d like some advice on putting the right financial processes in place, why not arrange a call with us? It’s an informal chat on the phone or video call. We’ll chat about your business, how you manage cashflow plus processes or software already in place and see if we can work together to make finances stress free.



Useful links

HMRC—Self employed
HMRC—Setting up a company

Companies House