An alternative to trading as a Sole Trader is to set up as a limited company.
Trading as a Limited company is rather more complex operating as a sole trader, but it's not difficult to set up and it certainly offers some distinct advantages over Sole Trader status.
Firstly, a new limited company has to be registered with Companies House, the UK's central body for company registrations. This means checking that the name you want to use is allowed and available, compiling all of the relevant information such as details of directors and the company registered office address as well as drawing up Articles of Association and a Memorandum. You must complete an annual return, hold an annual meeting, and if your turnover is above £60,000 you must also register for VAT.
Advantages
The 'limited' in limited company means that your personal liability is no higher than the amount unpaid on the company's share capital. So if you get into financial trouble, you will not be in danger of losing any of your personal assets to cover the debts of the company. A Limited company is a seperate legal entity to you or any other dorectors
Your potential customers and suppliers might view a limited company as a more 'serious' business than a sole trader or partnership.
The company can have monetary value in itself - again totally seperate from your personal finances. There is also a structure in place for you to sell a part of your company to someone else - not so easy to do when you are a Sole Trader.
Limited Companies can also take advantage of various tax laws to minimise the amount of tax you pay each year.
Disadvantages
A Limited Company costs money to set up and run. Set up costs can be quite low if you use one of the many online company formation agents. The administrative costs involved with preparing and submitting the company accounts will also cost money.
You can't be the only person involved with the limited company. The company must have atleast one Director and a Secretary. A sole direcotr can not also be the Secretary.
This can all sound rather overwhelming - but don't panic. A qualified accountant should be able to give you some advice and guidance. Your first meeting should be free.