18 May How does limited company accounting differ from sole trader accounting?
When you first set up a business, you will need to decide on the structure. For many people, this comes down to deciding whether setting up as a limited company or a sole trader is best.
here are key differences in how each type of company works, and this is certainly true when it comes to handling your accounts.
If you decide to set up as a limited company, it is key to know how your accounting needs differ from a sole trader’s. Understanding this ensures you know what your accounting responsibilities are and enables you to operate from a position of knowledge.
Limited Company accounting v Sole Trader accounting – What are the main differences?
The major differences lie in what returns you have to submit to the Government each year. Sole traders, for example, submit an annual self-assessment tax return to HMRC. Things are not quite as simple for limited companies, though! This sort of business has to file annual company accounts plus a tax return. But how does all this work?
In terms of tax, limited companies pay what is known as corporation tax. This sees your business complete a CT600 form and submits it to HMRC at the end of every financial year. This is then processed, and the amount of tax due calculated by HMRC, based on the current corporation tax rate.
In addition, a company that is limited also needs to send a set of annual accounts to both HMRC and Companies House at the end of each financial year. It is also usually required for limited businesses to file a confirmation statement with Companies House. This confirms correct details of shareholders, directors and where the business has its registered office.
Why set up as a Limited Company?
There is no doubt that structuring your business like this does bring extra paperwork and extra accounting responsibilities. This may lead some entrepreneurs to question taking this on when you could have an easier life in accounting terms as a sole trader. The truth is that trading as a limited company does have its own unique benefits. The major one for most business owners is that they have limited personal liability when trading in this way. Many also think it comes with a more professional, prestigious feel.
Let SQK Accountancy help with limited company accounting
If you have this type of business in Manchester and need help with keeping on top of your limited company accounting, give us a call today on 0161 706 0444. As the above shows, there is quite a bit to keep tabs on and multiple returns to make on time. If you find it a struggle or simply want the peace of mind which using a professional accountant brings, get in touch today.