Below we highlight potential disadvantages of trading as a company.
Companies have higher annual compliance requirements in terms of administration and accounting. So, the costs are usually higher for a company than for a sole trader or a partnership. Companies Act dictates the format in which the annual accounts need to be prepared. And in certain circumstances, the accounts need to be audited by a registered auditor. Details of the directors/shareholders are filed on the public register held by the Registrar of Companies.
The annual accounts have to be made available on public record. However, these can be modified to minimise the information disclosed.
As a company, if you pay directors or staff, you will need to complete PAYE records for salary payments. And you have to submit details of salary payments on a timely basis under PAYE Real Time Information. Also, you will need to keep records of expenses reimbursed to you by the company. Therefore, P11D forms may have to be completed.
A system needs to be set up for you to correctly pay dividends, if you will require regular payments from your company.
Business owner transactions
The owner of an unincorporated business may introduce funds to and withdraw funds from the business without tax implications. For the owner/director of the company there may be tax implications on these transactions.
A company director may be at risk of criminal or civil penalty proceedings. These can be for late filing of accounts or for breaking the insolvency rules.