If you’re thinking about setting up in private practice, or have already started seeing clients, you’ll need to decide how to structure your business.
You can choose from lots of different legal structures, but, when it comes to private practice, you only really need to know about five: sole trader, partnership, private limited company (plc), limited liability partnership (llp), and community interest company (cic).
This article will give you a short overview of all five. You can read more about each of them by following the links.
How are they different?
They are different in a number of ways, most importantly...
- the level and type of tax paid
- how much liability you have for the business debts
- the administrative, record-keeping and accounting requirements
Becoming a sole trader is a quick and easy way to get started. You simply need to let HMRC know that you’re self-employed, and you’re up and running. You pay income tax and national insurance via Self Assessment. Record-keeping and accounts are relatively straightforward and you don’t need to file any accounts. However, you’re liable for ALL your business debts. Find out more here.
If you want to run your private practice with one or more partners, and you TRUST them implicitly, a partnership is a good option. Like a sole trader, you pay income tax and national insurance on your share of the profits. All partners are equally liable for the business debts, making a partnership a potentially risky option. Find out more here.
Private Limited Company
A private limited company is a legal entity in its own right. This means that you are NOT liable for all of the business debts, and so there is less risk. You are an employee of the company, and will pay income tax and national insurance on your earnings. You will also have to pay Corporation Tax, and register the business and file annual accounts at Companies House. Find out more here.
Limited Liability Partnership
In 2001, a new type of partnership was created - the limited liability partnership. An LLP is a distinct legal entity, and is registered at Companies House, meaning that partners have limited liability for business losses. LLPs are subject to similar registration and accounting requirements as limited companies, yet tax is paid on a Self Assessment basis. Find out more here.
Community Interest Company
This is very similar to a private limited company, but has social enterprise status. Specifically, profits must be used for the benefit of the community. Find out more here.
What about VAT?
Whatever your business structure, if your VAT-taxable turnover exceeds £85,000 (2019/20) you will need to register for VAT. Find out more about VAT here.