If you’re ready to start your own aesthetic business, there’s one key decision you’ll need to make before you can take any formal steps to setting up your practice: Should you register as a sole trader or a limited company?
There are other ways to set up your new aesthetics business in the UK, including a limited liability partnership (LLP), but these two structures are by far the most common.
One of the two will most likely be best for you. But which?
What’s the difference between a sole trader and a limited company?
A sole trader is the simplest, most straightforward way to set up your business. It means you’ll operate your business as an individual. You are trading on your own, under your own name, your own entity.
You keep all your profits, everything goes directly to you, and then you pay self assessment tax on what you earn. You’re personally responsible for your business.
A limited company is a separate legal entity. You can be the sole owner/director of a limited company, but it remains separate from you personally. It has shares and shareholders (often just one – you) and its finances are separate.
Your company makes the profits, but you can take out those profits personally within certain legal and accounting rules. Because a limited company is considered separate, you’re not responsible personally (though directors do have some legal obligations).
Why set up your aesthetics business as a sole trader?
The quickest and simplest way to set up your aesthetics business is as a sole trader. It’s the default for many aesthetic nurses, therapists and practitioners.
You don’t need to officially register your business. You can just start trading and sign up for self-assessment with HMRC. (You’ll find all the details on how to do this in The Ultimate Guide to Starting an Aesthetic Business [link to ultimate guide landing page]).
You might set up as a sole trader because:
- It’s quick and simple, you can start practising right away
- You don’t need to worry about legal forms or official documents
- You can keep your accounting simple and straightforward
- You won’t need a separate bank account, and only need to file a self assessment return once a year.
- You can access all your profits whenever you want, it’s all your money.
Sounds great, what’s not to like?
The cons of being a sole trader
Despite the benefits of being a sole trader, the majority of aesthetic practitioners will either set up as a limited company right away, or quickly move away from being a sole trader as their business grows.
That’s because there are several cons of sole trading:
- You’re personally responsible for your business, including any losses. If your business racks up any debt, you need to pay it personally – and it could put your home or other personal possessions at risk.
- It’s not the most professional approach. There’s no separation between you and your business.
- It’s hard to bring anyone else into your practice and grow your business
- It can get messy managing personal and business finances side by side. You have to be very careful with all your transactions.
- You could rack up a high self assessment tax bill, because your options for managing profits are limited. It’s not the most tax efficient choice.
Why create a limited company for your new aesthetics practice?
All the cons of being a sole trader can make a limited company the more appealing choice for your aesthetics business.
The benefits of setting up as a limited company include:
- Looking professional. An official, registered limited company portrays an established, trusted look.
- No personal responsibility. You can run your company separately, safe in the knowledge that any debts won’t impact your personal life.
- No personal liability. Similarly, if there are ever any problems with clients or treatments, your company might be liable, but not you personally. Again, you’re protected.
- Tax efficiency. It’s much easier to manage your accounts and decide how you want to extract money from your business, reducing the amount of tax you might have to pay
- Business growth. When you have a limited company, it’s easier to expand your business, to hire staff and/or recruit a business partner.
A limited company might seem like a no-brainer for your new aesthetics business, but there are some other considerations and downsides you’ll want to bear in mind.
The downsides of a limited company
As its name might imply, a limited company is a legal entity. That means there are more rules and regulations surrounding the set up and running of your business if you register as a limited company.
There are more forms to fill in, and the set up might seem a little complicated.
You’ll also need to be stricter with the way you operate, specifically with your accounting and finance. Having a competent accountant is a must.
Perhaps most importantly, you’ll have less freedom with the money your business takes from client treatments. You’ll need to make sure you take it out of the business in a legal and tax efficient way.
But your accountant can help you with all of that. They’ll show you it’s not as complicated as it sounds and make sure you do everything you need to. After all, the majority of aesthetic businesses register as a limited company, along with millions of businesses in other industries.
The Ultimate Guide to Starting an Aesthetic Business walks you through setting up as a limited company.
So which is best for you? Sole trader or limited company?
Only you can decide.
It will all depend on your plans for your aesthetics business. Are you dipping your toes in the water or do you want to build your own successful practice?
Are you doing the odd treatment here and there, or do you want to move from part time to full time?
Weigh up the pros and cons of both, and speak to a professional accountant to discuss your options.
If you’re looking for more advice on setting up and running your own medi-aesthetic clinic, take a look at the Pabau Aesthetic Business Library.