A bookkeeper handles daily financial transactions such as recording income, expenses, and managing invoices. An accountant uses that data to prepare reports, file taxes, and offer financial advice. Both roles are essential, and often work together.

You should retain receipts, invoices, bank statements, payroll records, and tax documents. In the UK, HMRC requires businesses to keep these records for at least 6 years.

Choosing between operating as a sole trader or a limited company depends on various factors, such as your business goals, tax considerations, liability concerns, and administrative preferences.

Sole Trader

Advantages:

1. Simplicity: It’s easier and cheaper to set up. There’s less paperwork and administrative burden compared to a limited company.
2. Control: You have full control over decision-making since you are the sole owner.
3. Tax: You are taxed on your profits as part of your personal income (subject to income tax and National Insurance Contributions in the UK).
4. Privacy: Your business details are not publicly available (unlike with a limited company).

Disadvantages:

1. Unlimited Liability: You are personally responsible for all debts and obligations of the business. Your personal assets (home, savings) could be at risk if the business encounters financial difficulties.
2. Taxation: As your profits grow, you may face higher personal tax rates compared to the corporation tax rate paid by limited companies.
3. Raising Finance: It may be harder to raise funds or secure loans, as some investors prefer limited companies.

Limited Company

Advantages:

1. Limited Liability: Your personal assets are protected. The company is a separate legal entity, and you are only liable for the amount you invested in the company.
2. Tax Efficiency: Corporation tax is generally lower than personal income tax. You can also pay yourself through dividends, which can have tax advantages.
3. Professionalism: Being a limited company can give your business a more professional and credible image, which may help in securing contracts and clients.
4. Growth Potential: Easier to bring in additional shareholders or investors, and the business structure is more suited for expansion.

Disadvantages:

1. Complexity: There are more administrative responsibilities, such as filing annual accounts and maintaining proper records. You’ll also need to comply with company regulations.
2. Cost: There are additional costs for setting up and running a limited company (e.g., accounting fees, incorporation fees).
3. Public Records: Financial information and company details are publicly available, meaning less privacy.

Key Considerations:

• Income Level: If your business income is relatively low, it might be more cost-effective to remain a sole trader. For higher incomes, a limited company could offer better tax benefits.
• Liability: If your business involves significant financial risk, the limited liability of a limited company may provide better protection.
• Growth Plans: If you plan to scale your business or bring in investors, a limited company may be the better option.

Summary:

• Sole Trader: Best for small businesses, freelancers, and those looking for simplicity with limited administrative responsibilities.
• Limited Company: Ideal for businesses seeking liability protection, tax efficiency, and a professional image, especially if planning for growth.