Do I need to register a limited company before trading on Amazon

The answer here is no, you do not.

One of the most important steps in running a business is how to run the business. Let’s explore two of the main ways: sole trader vs a limited company.

Sole trader

Advantages

Simple

You are the business. Any money that the business earns belongs to you, and you can spend without having to worry about salary and dividends.

In terms of tax, you just need to register as self employed with HMRC (you can be self employed and employed at the same time if selling on Amazon if your “side hustle”.

You will need to register and complete a self assessment for income tax purposes at the end of the year.

Cheaper to run

Your accountancy fees will be lower as a sole trader compared to running a limited company.

Easier to extract money out of the business

Any money the business earns is yours to spend.

Greater degree of privacy

Unlike companies, you don’t need to publish your accounts at Companies House.

Disadvantages

You are the business

Any legal action against the business will be against you personally, the debts of the business are your debts. This is the most serious disadvantage of running as a sole trader.

Makes your business appears small(er)

Some suppliers/customers may only wish to deal with limited companies.

Limited company

Your limited company is a separate legal entity. Money that the company earns belongs to the company, and not to you as the owner/shareholder of the company.

Advantages

Your liability as a business owner is limited to the amount you have invested in the business. If the business is sued, the business is in trouble, you personally are not.

At higher levels of revenue, a limited company is more tax efficient than operating as a sole trader. In total, looking across all taxes, it is more tax efficient (less tax is paid) to run through a limited company than as a sole trader, particularly as you turnover increases.

Disadvantages

A higher level of administration, more time consuming and expensive to run.

The company will have to deal with Companies House and HMRC, dealing with statutory accounts, corporation tax returns and annual returns. In addition, if you are a company director and are taking money out of the company you will still need to register and complete a self assessment at the end of the year.

You will need to spend a high level of time dealing with the administrative side of things, and your accountancy fees will undoubtedly be higher when running a limited company compared to operating as a sole trader.

More complicated to take money out of the business.

You are running an Amazon business to make money. But the money belongs to the company, and you will need to extract it either by paying yourself a salary (which will involve your company registering for PAYE) or paying yourself dividends (which needs profits and cash in the business). The company can loan money to its directors, but this has tax consequences.

Conclusion

If you are starting out, it’s probably worth testing the waters as a sole trader rather than as a limited company. Once your business starts to grow, and your idea of trading on Amazon is bearing fruit then its certainly worth operating as a limited company. However, it is worth spending some time to understand the consequences of operating as a limited company and what you can and cant do if operating this way.

For further advice or for a free consultation, please get in touch with AllianceCA, chartered accountants based in London and in the cloud. We would be happy to speak to you about the best way to operate your business. Either send an email to info@allianceca.co.uk or call 0203 151 2354 and quote “AmazinSellers”.

[NOTE FROM AMAZINSELLERS]: The content and opinion of guest blog posts is fully that of the individual authors. AmazinSellers Ltd does not assume any responsibility for the advices provided by the authors.

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