University students have always been quick to spot a new opportunity. It comes as no surprise, therefore, that today’s academics comprise a significant proportion of those deciding to strike it out alone. But while not lacking in endeavour, this demographic is typically underserved by financial information - particularly when it comes to the tax implications of setting up a new business.
In this article, we’ll set out the primary options available to student entrepreneurs looking for a route into the market, while explaining some of the key considerations to remain aware of.
How to register as a sole trader
If your new business venture is something of a one-man band, registering as a sole trader might be the option for you. Considered the simplest approach to establishing a business, sole trader status suits those looking for a more straightforward accounting solution, without encountering excessive paperwork. And, with no stakeholders or directors to deal with, you’re the boss. This means that all decisions begin and end with you, the sole trader.
But as the legendary side-hustler Spiderman once said, “with great power comes great responsibility”. Without establishing a separate business entity, liability for business debts rests with the business owner. That means you and your personal assets will be at risk, if you fail to meet your financial obligations.
That being said, registering as a sole trader is the most common way of starting a business in the UK. Data collected by the Federation of Small Businesses show that 59% of the UK private sector is made up of sole proprietorships. This includes sectors as diverse as construction, marketing, retail, hospitality, and real-estate.
How to register as a limited company
For those looking to take their business to the next level, registering as a limited company enables entrepreneurs to scale safely and efficiently. Limited company status establishes a legal identity separate from that of its owners and directors. Because of this, debt burdens will be payable from company assets, rather than your own. Conversely, any money earned by the company belongs to the company, with personal income earned through salary and dividends.
This legal separation creates a buffer between yourself, and your business activity. But while involving less risk to the individual, it does involve more paperwork. So anyone looking to take this next step should ensure they have the right accounting infrastructure to process and track incomings and outgoings. Tools such as Dapio’s Tap to Pay enables real-time accounting, with exportable sales reports available whenever you need them. By combining the benefits of an any-place, any-time payment solution with a comprehensive accounting tool, our app makes it easier than ever for those looking to enhance their business.
How to register a business partnership
Some of the most successful businesses have developed from partnerships. If you’ve decided to team up with similarly ambitious entrepreneurs to establish your company, it’s worth bearing in mind the different options available from a tax and legal standpoint. These include:
- Ordinary partnerships - Similar to a sole trader setup, all individuals involved in the partnership should be registered for self-assessment. The company must dissolve if one partner leaves.
- Limited partnerships - Like a limited company, this form of partnership requires owners to register with Companies House. Limited partners are only liable for the money they’ve personally invested, as well as any capital guarantees they’ve made.
- Limited liability partnerships - LLPs are taxed as a partnership, but must follow the same process as limited companies, which includes registering with Companies House, as well as other administrative responsibilities.
We hope this guide helps to clarify some of the main options available for new business owners. If you’re seeking further clarity on some of the legal forms described, please check out the latest government guide, which can be found here.