Choice of Structure – Sole Trader, Partnership or Company?

Yoga Teachers are running businesses, and so need to think about business structure. For many Sole Trader is the default choice and works well.

Its important to know the structure of your business  as this effects your registration obligations, how you are taxed and other regulatory obligations.  A business cannot operate in a legal vacuum, it has to be something.

Sole Trader

• An individual in business, maybe with a trading name.
• The simplest of business structures and suited to small businesses run by one person.
• The business may have its own trading name but is regarded as synonymous with the owner at law.
• This will be the way most Yoga Teachers work.

For most Yoga Teachers, Sole Trader is the choice, moving on to Limited Company if their business grows.

Beware of the terms “freelancer” and “contractor” – they have no legal status, and will refer either to Sole Trader or Company depending on the structure adopted, as will concepts like “gig economy worker”

Partnership

• The tax position for a partner in a partnership is almost identical to that of a sole trade.
• Partnerships accounts are prepared on similar principles to a sole trader, and with the same rules regarding expenses.
• A Partnership Tax Return is submitted which splits the profits between partners.
• Each partner then enters their share of profits in their personal tax return and the calculation of Tax and NI is then identical as for a Sole Trader
• Our guide to Working Through a Partnership or LLP can be read separately.

Limited Company

• A more complex business structure, and differs from Sole Traders and Partnerships in that it creates a separate entity at law
• Owned by Shareholders and run by Directors – often one and the same
• Possible tax advantages as the business grows but at the expense of greater complexity and increased paperwork.
• The company also has limited liability – which means if it fails its Shareholders and Directors are not normally liable for its debts.
• More paperwork and administration – not the best choice for those who are not good with paperwork
• As a guide unless you are making a profit of c£30,000 a year from teaching yoga, its likely the administration of a company will outweigh tax benefits. Companies are best suited to those teachers earning at the upper end, or for studio owners, etc -for most teachers starting out a Limited Company isn’t necessary
• Our guide to Working Through a Limited Company can be read separately.

Beware of the terms “freelancer” and “contractor” – they have no legal status, and will refer either to Sole Trader or Company depending on the structure adopted, as will concepts like “gig economy worker”

Also note the concept of a Personal Service Company – its not defined at law, but generally means a company with a single director / shareholder who does most of their work for one other business or client – where this is the case the special IR35 rules can apply.  IR35 is unlikely to apply to someone working through a company and providing services directly to the public.

One final point – be aware of the use of “company” versus “limited company” – some people use “company” to describe any business including sole trader – check the context

Limited Liability Partnership

• A hybrid between a partnership and a company –
• taxed like sole traders/partnerships but with limited liability.
• Not a common choice for Yoga Teachers.

Social Enterprise or Charity – we have a separate guide on this topic
Working via a Social Enterprise or Charity

Comparison of Structures