One of the first decisions that the owner of any new roofing contracting business needs to make is whether to be a sole trader or to operate as a limited company. This is necessary because every business must have a legal status. The most appropriate structure for any roofing contractor will depend on a number of factors, including the tax implications, ownership and liability.
What’s the difference?
A sole trader is essentially a self-employed person who is the sole owner of their business. It’s the
simplest business structure out there – which is probably why it’s the most popular one with an estimated 3ó million companies in the UK operating on this basis.
A limited company is a type of business structure that has its own legal identity that is separate from its owners and its managers. It can be run by just one person.
Sole trader – advantages
Having complete control over your business is one of the most appealing reasons to become a sole trader. It’s also one of the most efficient ways to run a business, as there’s not much paperwork associated with running the business as a legal entity. The tax system is more straightforward too, as all you have to do is submit an annual self-assessment tax return.
Sole trader – disadvantages
You won’t be regarded as a separate entity by the law – therefore, you are subject to unlimited liability. This means that if things go wrong, such as your business getting into debt, you are liable.
In the worst case, this may mean you risk your home, personal savings and any other assets you have both inside and outside of the business.
Raising finance for your business is more problematic, which means that if your business does take off and you need more staff, premises or vehicles, you’ll have to jump through more hoops to prove you’re not a credit risk.
In some cases, you may be unable to take advantage of the economies of scale when purchasing materials in the same way as some limited companies can, but that’s where our TRADE CLUB can help. You can earn points when you purchase your roofing products from us and we will reward you with discounts off your purchases.
One final thing to mention is that the tax regime is not as favourable to sole traders.
Limited company – advantages
Following on from the point above, broadly speaking, being a limited company is more tax efficient, as your company pays corporation tax on its profits. As things stand, this offers a kinder tax rate, meaning forming a limited company can be more profitable. In addition, there are a wider range of allowances and tax-deductible costs that a limited company can claim against its profits.
When you start out, you can run your business from your house and claim back for the cost of doing so if, for example, you use one bedroom as an office and a garage for the storage of materials.
It’s also worth noting that part of registering a limited company includes the registration of a company name, which is important in protecting the brand name of your business.
Limited company – disadvantages
There are more-complex and restrictive rules governing the accounts and bookkeeping of limited companies than sole traders. Your company will be expected to produce yearly accounts incorporating a double-entry format, balance sheets and other notes. This is more expensive than preparing an annual self-assessment tax return as a sole trader.
One final point
The issue of privacy is difficult to pigeonhole as to whether it’s a benefit of being a sole trader or a disadvantage of being limited. The details of every limited company have to be registered with Companies House, and therefore your company’s financial records are available to view online. This sort of transparency needs careful consideration.
Remember, roofing contractors starting their own business are encouraged to seek professional advice. Local business support agencies, such as chambers of commerce are good at signposting
help and support.
If there’s anything else you’d like us to cover, then get in touch on Twitter @SIGRoofing #ContractTalk