Are you planning to start a business in the UK? One of the first decisions you will need to make is choosing the type of business structure. What will be your business model and budget? How many people do you plan to hire? What tax structure will you adopt? Answering these and many other questions will help you choose a business model that suits your industry and expectations.
How to Start a Business in the UK
Starting a business in the UK can be a great option, especially due to the transparent tax system and attractive social insurance contributions.
If you’ve already decided to start a business, you now need to put your plan into action and register your company. Choosing the type of business structure will have a significant impact on the whole process. The requirements you need to meet as a sole trader are completely different from those if you decide to run a business as a Limited Company, for example.
The first step is always to choose your business structure. Of course, this decision should not be rushed or based solely on the formalities you need to fulfill. You should primarily consider the tax benefits, the number of employees you plan to hire, and the nature of your business.
Types of Business Structures in the UK – What Are Your Options?
Each business structure in the UK has different conditions and criteria you must meet. You can choose from:
- self-employment,
- Limited Company (LTD),
- Partnership,
- Limited Liability Partnership (LLP),
- Public Limited Company (PLC).
As you can see, there are many options. For beginner entrepreneurs, the choice usually narrows down to two options: self-employment, which is similar to a sole proprietorship in Poland, and the Limited Company, which shares many similarities with a Polish limited liability company.
However, this doesn’t mean you should dismiss the other options. On the contrary, it’s worth taking a closer look at all available possibilities.
Self-employment
Self-employment involves the least amount of paperwork. You could say this structure is very similar to a sole proprietorship in Poland. It’s often chosen by small businesses and beginner entrepreneurs who are looking for minimal formalities. However, to run a business in this form, you must register your business address in the UK. This means you cannot run your business from Poland.
Limited Company
Choosing a Limited Company opens up additional opportunities. First, you don’t need to be a UK resident to run a business in this form. Operating an LTD for 10 years also entitles you to receive a UK pension. As an LTD director, you can also benefit from additional tax exemptions.
However, setting up a company and making any changes involves more formalities. You must register at least one director and one shareholder, prepare the company’s articles of association, and create a memorandum of association.
Partnership
This type of business structure means you will share responsibility for the company with a partner. This includes all losses, liabilities, and bills for purchases made for your business. You will also share the profits, but each of you will pay taxes on your own shares individually.
Limited Liability Partnership (LLP)
LLP is a hybrid structure between a partnership and a Limited Company. At least two members (partners) are required to form an LLP. Their liability is limited to the amount of capital contributed.
Since an LLP is treated as a partnership, you as members will be taxed, but the LLP itself will not pay corporate tax.
Running an LLP also involves many formalities, such as drafting a partnership agreement, holding partner meetings, and preparing reports.
Public Limited Company (PLC)
A PLC is the UK equivalent of a joint-stock company in Poland. This means, firstly, that it can be listed on the stock exchange, and secondly, as a shareholder, you are only liable for the company’s obligations up to the value of your shares.
In this case, you must fulfill many formalities, including paying both tax on profits and corporation tax. This structure also requires a minimum of £50,000 in share capital and holding shareholder meetings.
Business Costs in the UK – The Type of Business Matters!
As you can see, each business structure involves different formalities and tax obligations. As an LTD director, for example, you can benefit from additional tax exemptions, while running a business as a joint-stock company means you will pay corporate tax and declare your dividend income.
Running a business in the UK gives you a wide range of possibilities as an entrepreneur. However, it’s up to you to make the most of the potential offered by UK regulations. You don’t have to handle everything on your own though. Take advantage of our tax advisory services and ensure you choose the best business structure for you while minimizing your business costs.
