Sole Trader or Limited Company For Your Afro Hair Business: What Are The Big Differences?
In this very business oriented guest post, Kateata – who is an accountant at hairandbeautyaccounting.com – tell us everything we should know about choosing the right company structure for your next venture.
It’s always a pleasure to collab with like-minded businesses! I met Simone at a Fashion & Beauty networking event; we discussed everything from black hair, growing up black to Vitamin D deficiency awareness. We both agreed it would be a great idea for me to collab by providing a financial blog for hair & beauty business owners, like yourself. So here is the thing, not everyone plans for their part-time hustle to flourish into their full-time job. But, when this happens, it’s best to know what is going to work for you and what your options are. Would you prefer to grow your hair & beauty business as a Sole Trader (self-employed) or Limited Company? Keep reading for my top 5 Sole Trader vs Limited Company comparisons on running a business.
Your year-end obligations
Sole Trader: You’ll be required to submit a Self-Assessment tax return every year and pay income tax on your profits as well as national insurance.
Limited company: A bit more complicated, you will be required to submit Annual Company Accounts and a Corporation Tax return.
Sole Trader: You wouldn’t be able to pay yourself a wage, however, you can withdraw money from your business but, be responsible and reasonable.
Limited company: You can pay yourself dividends as a shareholder and/or you can hire yourself as an employee! You will have to pay yourself the national minimum wage.
Sole Trader: As a self-employed hairstylist you do not need to open a separate business account unless you wish to do so!
Limited company: Difference here is, you must open a business bank account, separate to your own personal accounts.
Withdrawing money here and there (for personal use)
Sole Trader: If your hair & beauty business is your main source of income, it’s okay to withdraw money for personal use, it will be recorded the same way as tip #2, “paying yourself”.
Limited company: If only it was just as easy! You can’t withdraw money from your LTD business as you would as a Sole Trader. There are different options for this as money going in and out of your business bank account must be accounted for.
Sole Trader & Limited Companies: You must be registered as an employer if you wish to hire staff to assist you. You could also hire independent contractors which your accountant will put through as a business expense, (Finally, something in common!).
Summing-up, there are many differences between operating as Sole Trader vs Limited Company. This is because Limited Companies are seen as its own legal identity, however, Sole Traders are seen as the same as the business. So, choose what is best for you, you can always change it later!
For more information on this blog contact email@example.com and mention ‘Afrocks’ for a FREE 30-minute call. Also, connect with us via Instagram: @hairandbeautyaccounting. We post tips there too!
Accountant at Hair & Beauty Accounting Ltd