Types of business structure in the UK compared

Sole trader: no separate entity, income tax and Class 4 National Insurance on all profit, unlimited personal liability, no public filing. Simplest to start and to stop.

Partnership: two or more people trading together, taxed personally on their profit shares, unlimited liability, an SA800 partnership return but no Companies House filing.

Limited liability partnership: a body corporate with limited liability, but tax transparent, so members pay personally. Files accounts at Companies House like a company.

Private limited company: separate legal person, corporation tax at 19% to 25%, limited liability, accounts on the public record.

Company limited by guarantee: a company with members and guarantees rather than shares, typically used by clubs, associations and non-profits.

Community interest company: a limited company with a community purpose, an asset lock and an annual CIC 34 report. Taxed as a normal company.

Charity, including the charitable incorporated organisation: regulated by the Charity Commission, substantial tax exemptions, unpaid trustees and tighter rules on trading.

Personally taxed structures, sole trader, partnership and LLP, pay income tax at 20%, 40% and 45% plus National Insurance on profit as it arises, drawn or not.

Corporate structures, limited company, guarantee company and CIC, pay corporation tax at 19% up to £50,000 and 25% above £250,000 with marginal relief between, and owners pay a second personal layer only on what they extract.

Charities are exempt from tax on income applied for charitable purposes, which is the single biggest fiscal difference between a charity and a CIC doing similar work.

Sole traders and general partners carry unlimited personal liability. LLP members, company shareholders and guarantee company members do not, subject to guarantees they give personally and to wrongful trading rules.

Some clients, agencies and public sector buyers will only contract with an incorporated supplier, and lenders and grant funders often expect a company or charity structure. That frequently decides the question ahead of tax.

Start with what the business does, who is involved, how profit will be shared, whether you need outside investment or grants, and how much profit will be retained. Then test the tax outcome.

None of these are permanent. Sole traders incorporate, partnerships convert to LLPs, and companies are inserted under holding companies every day. Each change has tax consequences, which is why the move should be planned before it happens rather than tidied up afterwards.