Most first-year problems are not caused by bad trading. They are caused by two things: choosing the wrong structure at the start, and spending money that was always going to be owed to HMRC. Both are avoidable in an hour of conversation.
Sole trader or limited company?
This is the first decision and it has consequences that are awkward to unwind later. There is no universal answer, but there are reliable signals.
Sole trader tends to suit you if
- Profits are modest — broadly below £30,000 to £40,000
- You want minimal administration and no public filings
- Your customers do not care about corporate status
- You are testing an idea rather than committing to it
A limited company tends to suit you if
- Profits are higher, and the salary-plus-dividend route saves meaningful tax
- You want your personal assets separated from business liabilities
- You are contracting for clients who will only engage limited companies
- You intend to take on investment, bring in a partner, or eventually sell
- You want to leave profit in the business to fund growth
Bear in mind that a company brings real obligations: annual accounts and a confirmation statement on the public record, a corporation tax return, a directors' payroll scheme, and rules about how you take money out. It is not simply a more efficient version of being self-employed.
Compare the sole trader calculator with the salary versus dividends calculator at your expected profit level. The gap between them is the tax benefit — weigh it against roughly £600 to £1,200 a year of additional compliance cost.
What we set up
- Company incorporation at Companies House, usually the same day
- Share structure suited to who is involved and how profits will be split
- Statutory registers, share certificates and the PSC register
- Registration for corporation tax, PAYE, VAT and CIS as needed
- HMRC agent authorisation so we can deal with them for you
- Cloud accounting software configured with your bank feed connected
- A tax calendar with every date you will need to hit in year one
The first-year plan
The single most useful thing a new business owner can do is understand that a portion of the money in their bank account already belongs to HMRC. We set out what you should expect to owe, when each amount falls due, and what percentage of income to move into a separate account each month.
The particular trap for sole traders is payments on account. Your first Self Assessment bill can arrive alongside the first instalment towards the following year — meaning eighteen months of tax due within about six months. Nobody enjoys discovering that in late January.
Choosing your year-end
A company's accounting reference date defaults to the end of the month you incorporated in, but it can be changed. The choice affects when tax falls due and how well the year-end sits alongside your trading cycle. Worth five minutes of thought at the start, rather than accepting the default and living with it.