• the tax and National Insurance that you pay
• the records and accounts that you have to keep
• your financial liability if the business runs into trouble
• the ways your business can raise money
• the way management decisions about the business are made

  There are several structures to choose from, depending on your situation. This guide will help you understand the differences between them.

Sole trader

  Being a sole trader is the simplest way to run a one-person business, and does not involve paying any registration fees. Keeping records and accounts is straightforward, and you get to keep all the profits. But you are personally liable for any debts that your business runs up, which can make this a risky option for businesses that need a lot of investment.

Set-up

• You need to register with the Inland Revenue as self-employed.
• You have to make an annual self-assessment return to the Inland Revenue.
• You must also keep records showing your business income and expenses.

Tax and National Insurance

• As you are self-employed, your profits are taxed as income. You need to pay fixed-rate Class 2 National Insurance contributions (NICs) and Class 4 NICs on your profits

Partnership

  In a partnership, two or more people share the risks, costs, and responsibilities of being in business. Each partner is self-employed and takes a share of the profits. Usually, each partner shares in the decision-making and is personally responsible for any debts that the business runs up.

Set-up

• Each partner needs to register with the Inland Revenue as self-employed.
• It's a good idea to draw up a written agreement between the partners. For further advice, consult an accountant or solicitor.
• The partnership itself and each individual partner must make annual self-assessment returns to the Inland Revenue.
• Must keep records showing business income and expenses.

Tax and National Insurance

• As partners are self-employed, they are taxed on their share of the profits. Each partner needs to pay fixed-rate Class 2 National Insurance contributions (NICs) and Class 4 NICs on their share of the profits.

Limited liability Company

  Limited companies exist in their own right, distinct from the shareholders who own them. This means their finances are clearly separated from the personal finances of their owners.

Set-up

• Must be registered (incorporated) at Companies House.
• Must have at least one director (two if it's a PLC) and a company secretary, who may also be shareholders.

Records and accounts

• File accounts with Companies House.

Tax and National Insurance

• Companies pay corporation tax and must make an annual return to the Inland Revenue.
• Company directors are employees of the company and must pay Class 1 National Insurance contributions (NICs) as well as income tax on their salaries.
• If your company or organisation has any taxable income or profits, you must tell the Inland Revenue that your company exists and that it is liable to tax.

Overview of legal structures

Sole trader

Advantages, independence , relatively easy to set up and run, profits go to you .

Partnership

Advantages, provides reduced exposure to meeting the company's debts. This means that your personal risk will be restricted to how much you invest in the business and any guarantees you have given in order to obtain financing.