Need a business license for your ungating project? If you’re looking to get ungated on Amazon.co.uk as a Sole Trader, you will likely have come across the request for a business license. This is stopping Sole Traders getting ungated in main categories like grocery, watches and jewellery when they first start out on their Amazon journey. Why? Because Amazon will not accept an UTR letter from HMRC as a business license! So what do you do? Well, you have a few options and we are going to take you through them all right here.
Firstly, if you want to jump in feet first and smash it out the park immediately, you should consider a Limited Company structure as that will ensure that your business structure doesn’t hold you back from any category ungatings whatsoever on Amazon. However, what if that doesn’t suit you? What if you don’t want the responsibility of a “Company” straight away? Well, there are other options too as Amazon have recently been offering free ungatings on different categories to ALL business entity structures but you are going to have to display a fair bit of patience if you want to stay a Sole Trader and sell watches for example.
As a Sole Trader, the best way to get free ungatings is to go full throttle on sales in ungated categories and we’ve known people get free ungatings within four months or so if they are turning over many thousands of pounds in sales. Those free ungatings are only sub-categories though but if you keep ‘feeding the beast’ as we say i.e. sending in stock for resale to Amazon, hopefully a few months later you will be rewarded with ungatings in main categories too. There is no definitely timescale or turnover that will do the trick, well there probably is, but we don’t work at Amazon so aren’t privileged with such information!
So the choice is, go Limited and get immediate access to the ungating process, or go Sole Trader and wait it out. Now we are not accountants so this isn’t meant as tax advice but to help you make the decision, we have scoured the net for information and bring you the basics between the two in what we hope is as easy to follow format. Best of luck with your ungatings, whichever path you decide is best for you.
Limited Company Structure
What is a limited company?
Before we get into the advantages and disadvantages of a limited company, let’s take a glance at its definition as a limited company is one of the most favoured type of business structures. A business that is described as a limited company will be separate from the people who run it i.e. its money is separate from the owner’s personal money. It’s held accountable for its own debts and liabilities. It can even possess assets and retain the profits it has made after taxes have been paid.
In simpler words, a limited company is independent.
What are the requirements?
In the UK, the business must be legally incorporated with Companies House. If you aren’t familiar with it, Companies House is a government agency which operates as official registrar of companies located in Wales, England, Northern Ireland and Scotland. It is supported by the Department of Business, Innovation and Skill.
A limited company is responsible for filing and reporting its accounts in accordance with the Companies Act of 2006, and a Corporation tax of 20% from their taxable income must be paid.
What composes a limited company?
There are four roles that make up a limited company namely: members, shareholders, guarantors, and directors.
Members - an individual or group who own a private limited company
Shareholders (profit company) – members who are limited by shares
Guarantors (non-profit company) - members who are limited by guarantee
Directors – managers of both profit and non-profit companies
There are plenty of small sized businesses across the UK who has one person to play all these four roles; however, a limited company is versatile in nature, allowing businesses to have multiple members, shareholders, guarantors, and directors with a chance to update the appointment of roles.
The Pros to operating as a limited company
If your company values professional status, need to minimize tax and limit liability then operating as a limited company should work best.
The best benefit in a limited company is: Limited company = limited liabilities.
If a company goes through a financial struggle, all the shareholders’ properties and money are protected beyond the value of their shareholding. Going back to a limited company’s characteristics, its assets and finances are totally separate from the members’ personal finances.
If the company runs into debts and for some reason is unable to reimburse, the shareholder will only contribute in proportion to their shareholding’s nominal value which can be as affordable as £1.
Tax efficiency with a limited company
A limited company allows flexibility with taxation on profits, and even personal income.
Compared to Sole Traders who currently (January 2017) pay 20% income tax for profits that are £11,000-£45,000, 40% for profits between £45,001 and £150,000, and a boggling 45% for profits beyond £150,000; Limited companies only pay 20% corporation tax regardless of profit size.
Boost your company’s image
A number of corporations prefer doing business with limited companies rather than Sole Traders because limited companies have a reputation of being more credible, established, and committed. It also helps that your partner companies know that a limited company has limited liabilities.
The Cons to operating as a limited company
The drawbacks in a limited company are mainly to do with a bit more hassle and some time consuming tasks which we run through here:
There are a lot of administration and accounting requirements that come with being a Limited Company;
You must incorporate a company at Companies House;
Set up costs are higher compared to Sole Trader structure;
Only qualified directors are considered fit for the role. If you have a director in mind that has been declared bankrupt in the past that is going to be prohibitive of him or her being involved in your limited company;
All the information regarding the owner and the members are considered public records although you can get around this a little using a registered address like this one: www.registeredaddress.co.uk. If you use affiliate coupon code A188859 YOU get a 10% discount :-)
Professional accountants are needed to do the job well although a good accountant will in fact pay for his or her own fees with their tax efficient advice
Sole Trader Structure
What is a Sole Trader?
A Sole Trader is another type of business structure which is owned and operated by an individual who is liable for all the claims and debts. It is the 2nd most popular type of business structure for small to medium sized businesses in the UK.
Despite its popularity, Sole Traders do not enjoy the benefits that profit companies, and non-profit companies enjoy. There is also no legal distinction between the owner and his business if operating under this structure.
What are the rights and responsibilities of a Sole Trader that are different to a Limited Company?
Paying the Class 2 National Insurance Contributions every week or twice a year, Class 4 National Insurance on all profits of business .and Income tax return on all the taxable income;
Filing for Self-Assessment Tax return every year for HMRC;
The Pros of operating as a Sole Trader:
Unlike a limited company, you are free from requirements and fees to incorporate a company at Companies House;
Setting up online via HMRC is not as bad as you think. It is quite quick and easy!
You don’t need a huge amount of money to start your business;
The accounting requirements and paperwork are minimal and nothing a business-minded Sole proprietor can’t do;
Accountancy costs are lower;
Sole proprietors have total control of their own business;
All assets belong to the owner;
Tax relief is available on all business expenses and purchases;
All profit can be retained after tax;
Information about the owner and the employees can be kept private.
The cons of operating as a Sole Trader
A Sole Trader has unlimited liability which means he or she is responsible for paying debts alone;
The owner has to pay income tax on all profit and it can be as high 45%;
There are a number of taxes that need to be paid by the owner;
Gaining professional status is an excruciating process because Sole Traders can appear less established to corporations which may lead companies to hesitate in dealing with small businesses;
There are pros and cons to all business structures and you should take advice as to which suits your personal circumstances but we hope we have helped you understand the basics at least.
We wish you every success with your business, whichever structure you choose!