There is a significant difference between running business accountants in London as a sole trader or as a limited company. Many people may not know it or do not understand it properly. Here in this blog, we will evaluate those differences. Let’s have a look.
Accounting and Tax Return Policies
- Sole Trader: It’s simpler to handle the annual accounts as a sole trader. You don’t have to keep as many details are you have to if trading as a limited company. International accounting standards may not apply as you will be submitting the tax return only in which you will follow HMRC rules instead
- Limited Company: It’s a little complicated for limited companies as all the compliance should be in accordance with the Companies Act format and according to GAAP. Compliance for HMRC is also necessary hence you are dealing with two different bodies at the same time.
- Sole Trader: Being a sole trader of a running business, all the profit that the business earns will become the property of the sole trader alone after the certain tax deductions and NICs.
- Limited Company: Because a limited company is a separate entity from its owners and shareholders, the owner will have to extract the profits through dividends which are subject to taxes.
- Sole Trader: Tax rates are different for a different level of income. However personal allowance (tax-free amount) is given to sole traders, which starts to reduce if profits are over £100,000/year.
- Limited Company: Tax rate remains the same regardless of the level of income, however, the is no tax-free profit in the company. For a limited company, you will most likely require an expert to manage the company accounts.