When people are running a business, they often think they need to form a company. In fact there’s nothing wrong with running your business as either a self-employed individual, or a partnership if there is more than one of you.
Some very large businesses, for example large accountancy or law firms, are run as unincorporated partnerships.
If you have a small business, the main advantage to not operating as a company is that it’s simpler to be self-employed.
A self-employed person just has to submit a tax return to HMRC once a year. A partnership needs to submit a partnership tax return, plus a tax return for each partner.
A company has to submit annual accounts and a confirmation statement to Companies House. Additionally, the accounts and a corporation tax return need to be submitted to HMRC.
If the company director takes a salary, the company needs to run a payroll scheme, deduct PAYE, and submit returns each month.
Dividends paid by the company need to be declared in a minuted meeting and dividend vouchers need to be issued. The director then submits a personal tax return to HMRC to declare tax due on those dividends.
So you can see there’s lots more work for your accountant if you work through a company, but before you rush into forming one, it’s worth checking whether there will be any advantage for you.