OK, so this is where a lot of people get scared. But don't worry, it's not that scary.
Setting up your business correctly from the start is an important first step in your street food journey. A lot of traders start as a sole trader because you don’t have to do much paperwork to start and can just get going. However, as their business develops, many move to being a limited company to help better manage their income and expenditure.
Ever wondered what’s the difference between a sole trader and a private limited company? Or what you’re personally liable for in terms of payments or health and safety? In the table below, we outline all the different options ahead of you so you can make sure you’ve made the right decisions for a food business.
A sole trader company is the simplest kind of business structure. There’s no legal difference between a sole trader and their business. As a sole trader, you are the business as far as the law is concerned.
To start as a sole trader business, you need to register with HMRC as a sole trader. Sole traders have to file a Self Assessment tax return every year for the previous tax year. If you file online, you have until the 31st January after the end of the tax year to submit your return.
e.g. If you traded between April 2018 and April 2019, your tax return would need to be returned by 31st January 2020.
Sole traders don’t have to file their accounts publicly; accordingly, your tax return is not on the public record and your business’s figures are kept private.
Keep in mind that because a sole trader is not legally different from their business, that means that if your business is sued, you are personally sued. Your own assets – for example, your home and your car – could be taken to pay the debts.
A partnership is similar to a sole trader except that there is more than one person running the business. There’s no legal difference between the partners and the business itself.
To set up a partnership, you will need to register the business with HMRC. One partner would be the nominated partner responsible for filing tax returns to HMRC, and that person must register the partnership. The other partner(s) must also register separately.
The deadlines for registering and for filing tax returns are the same as for sole traders, but not only must the partnership file a tax return, each partner must also file one. In total, that means there will be at least three tax returns to file each year and similarly to a sole trader, partnerships are not required to publicly file their accounts.
As partners are legally the same entity as the business, if the business is sued or one partner vanishes with the partnership’s money or other assets, the other partner or partners could lose their personal assets to pay the business’s debts. That’s why it’s a good idea to draw up a partnership agreement covering important issues like what happens if a partner leaves the business or dies, how much money each partner will put into the business and how much she or he can take out.
In a limited company, the company is a separate legal entity from the people who run it (directors) and those who own it (shareholders). If you don’t have any investment, the directors will most likely be the shareholders; however, even if there is only one director who owns all the shares, the company remains a separate legal entity from that person.