As the financial year draws to a close, many business owners start to reflect on how their current structure supports their goals and whether it is still fit for purpose.
Choosing between operating as a limited company (Ltd), a limited liability partnership (LLP), or a sole trader can significantly affect your tax efficiency, liability, and flexibility.
If your circumstances have changed, your business has grown, you have taken on new partners, or you are planning to invest, it may be time to revisit your setup before year-end.
Understanding the main business structures
Sole trader
A sole trader runs their business as an individual. It is simple to set up and manage, but you and your business are legally one and the same.
Key points:
- Full control over decision-making.
- All profits belong to you and are taxed as personal income.
- Unlimited liability means you are personally responsible for debts and legal claims.
- Minimal administrative burden.
This model suits small, low-risk businesses or individuals starting out, but it can become less efficient as profits grow or risks increase.
Limited company (Ltd)
A limited company is a separate legal entity, meaning your personal finances are distinct from your business.
Key points:
- Limited liability protection.
- Profits are subject to Corporation Tax, not personal income tax.
- Flexibility in how you draw income (salary, dividends, or a mix).
- More compliance and reporting obligations.
This structure often benefits established businesses seeking tax efficiency, reinvestment opportunities, and professional credibility.
Limited liability partnership (LLP)
An LLP combines the flexibility of a partnership with the limited liability of a company. It is commonly used by professional firms or joint ventures commonly use it.
Key points:
- Partners share profits according to the partnership agreement.
- Each partner is taxed individually on their share of profit.
- Limited liability for partners’ personal assets.
- Requires a formal LLP agreement and registration with Companies House.
This structure can be ideal when multiple partners contribute to management but want legal protection.
When should you consider restructuring
The right structure depends on your goals, both short and long term. However, certain triggers often signal it is time for a change:
- Profit growth: As your income rises, a limited company may offer better tax planning opportunities.
- Bringing in partners or investors: An LLP or Ltd structure makes it easier to formalise ownership and profit sharing.
- Risk management: Incorporation limits personal liability in case of disputes or debt.
- Succession planning: Transferring shares in a company can be smoother than selling a sole trade.
- Expansion: Scaling up often requires a more robust framework for governance and compliance.
With Corporation Tax rates, National Insurance thresholds, and income tax bands reviewed annually, the year-end period is an ideal time to assess your setup and plan ahead.
Key year-end considerations
Before making any changes, consider:
- Timing: Restructuring before year-end can align your new setup with fresh financial records and tax returns.
- Tax reliefs: Incorporation or restructuring may unlock new reliefs or restrict existing ones.
- Costs and compliance: Factor in setup fees, legal requirements, and ongoing administrative duties.
- Future flexibility: Choose a structure that can adapt as your business grows, not just your current position.
Thinking about restructuring before year-end?
Speak to your local Haines Watts advisor to review your options and make informed decisions for the year ahead.
