When you are setting up your virtual assistant (VA) business in the UK, it is really important to choose the appropriate business structure for you. There are five options that you can opt for, these are sole trader, limited company, a partnership, a limited liability partnership or joining a franchise. Each option has its advantages and considerations, so we will go through them here so you can make an informed choice on what works for you, plus we will refer to the patterns we found in the UK VA Survey to help you understand what others in the industry are doing.
Sole Trader
In 2024 77% of virtual assistants ran their business as a sole trader. It’s a popular option and can be a good option when you are getting started. It is also worth noting that 92% of part-time virtual assistants were working as sole traders.
Operating as a sole trader is the simplest and most straightforward option. When you work as a sole trader, your business is not registered with Company’s House and is not a legal entity, instead there’s no legal distinction between you and your business. You will have to register as a sole trader with HMRC within three months of starting your business. You will often see sole trader’s businesses being referred to, for example, as John Smith trading as (or t/a) JS Virtual Assistant Services.
Advantages:
- Ease of Setup: Registering as a sole trader is straightforward, involving minimal paperwork and lower initial costs.
- Time to choose: You can start out as a sole trader and then choose to register as a limited company at a later date if you aren’t sure about making the commitment early on in your virtual assistant journey.
- Ease of bookkeeping & accounting: Pulling together your bookkeeping and tax returns is straightforward.
- Control: You have complete control over business decisions and retain all profits after tax.
Considerations:
- Unlimited Liability: You’re personally responsible for any business debts, which means personal assets (including your home) are at risk if the business encounters financial difficulties or if you are taken to court for something that went wrong in your business; you are personally liable.
- Perception: Some clients may perceive sole traders as less established compared to limited companies.
- Protecting your business name: Your business name is not legally protected, so you may need to consider trademarking your business to stop others from using the same trading name as you.
- Selling your business: It is not as easy to sell a business if you are working as a sole trader.
Partnership
A partnership is created where two or more sole traders join forces to set up a business together, usually having signed a contract together to make parameters clear. A partnership, much like with sole traders, is not registered on the Companies House website as a business. As with sole traders, partners are personally liable for the debts and liabilities of the partnership. In this instance, the liability is joint (other than liability for tax).
Advantages:
- Shared Responsibility: Workload, risks, and decision-making are shared amongst the partners.
- Combined Resources: Partners can pool skills, expertise, and capital to grow the business (we tend to see these types of businesses grow quite quickly).
Considerations:
- Joint Liability: Partners are jointly liable for business debts and liabilities, meaning personal assets (including homes) could be at risk.
- Potential Conflicts: Disputes may arise over decisions, roles, or profit-sharing.
- Your business name is not legally protected, so you may need to consider trademarking your business to stop others from using the same trading name as you.
Limited Company
A limited company is registered with Companies House and is a separate legal entity from its owners, offering a distinction between personal and business finances. Once registered, It’s the shareholders who own the company and the directors govern the company’s activities.. In the 2024 UK VA Survey, 22% of Virtual Assistants said their businesses were registered as a limited company.
Advantages:
- Limited Liability: All shareholders’ personal assets are protected; they’re only liable up to the amount they’ve invested. However, there are still circumstances where personal liability may arise, for example, by giving personal guarantees or security on company borrowings, or the company trading wrongfully or fraudulently.
- Tax Efficiency: Potential tax benefits, as profits can be distributed as dividends, which may be taxed at a lower rate than income.
- Professional Image: Operating as a limited company can enhance credibility with clients.
- Protected: Your company name is protected as soon as you register with Companies House.
Considerations:
- Complexity and Costs: Setting up and running a limited company involves more administrative responsibilities, including annual accounts, corporation tax returns. And there is the complexity of salaries, dividends and incorporated costs such as National Insurance.
Limited companies must file an annual confirmation statement at Companies House, and accountants will usually charge extra to administer a limited company as opposed to a sole trader (usually about £300-£500 extra per year in accountancy fees) because of the requirement to produce statutory accounts and a corporation tax return. - Business Bank Account: You’ll also need a business bank account and an address where you can display the company name – a legal requirement for all limited companies – and have any post forwarded. Your registered number and office address must also be displayed on your business stationery and website.
- Tax returns and accounts: A limited company must prepare and file annual accounts at Companies House.
- Regulatory Compliance: Directors have legal obligations, and the company must adhere to stricter regulatory requirements.
Limited Liability Partnership (LLP)
An LLP is a kind of hybrid structure that combines the features of a partnership with limited liability for its members. In 2024, the UK VA Survey recorded only 0.4% of VA businesses running as LLP; however, of those that are established, we know of a couple that have been running for a long time very successfully, so it is a viable option.
Advantages:
- Limited Liability: Members’ personal assets are protected, similar to a limited company.
- Flexibility: Members can structure roles, responsibilities, and profit-sharing agreements according to their preferences.
- Protected: Your company name is protected as soon as you register with Companies House.
Considerations:
- Compliance: LLPs are required to file annual accounts and meet reporting obligations with Companies House.
- Shared Control: As with partnerships, disputes between members can arise.
Franchise
Joining a VA franchise involves operating under an already established (by someone else) brand and business model.
Advantages:
- Established Brand: Benefit from the reputation and marketing of an existing brand, which can attract clients more easily.
- Support and Training: Franchisors often provide comprehensive training, ongoing support, and resources.
Considerations:
- Initial and Ongoing Fees: Franchisees typically pay an initial franchise fee and ongoing royalties or fees to the franchise owner, which can reduce overall profitability.
- Limited Autonomy: Operating under a franchise means you have to adhere to the franchisor’s established systems, marketing, branding, services and guidelines, limiting your ability to make independent business decisions.
- Do your research. We can’t stress this enough. There are some very reputable virtual assistant franchises out there, but there are also some less reputable ones – we come across people who have paid thousands of pounds and had very little in return. Ask around, research online and consider carefully the costs and risks associated with a franchise model and what it means for you in the long term.
Conclusion
In conclusion, there is no one style that will suit everyone – you have to choose the right business structure for you and your VA business, and this will depend on factors such as your financial situation, assets, risk tolerance, desire for control, and long-term goals.
Operating as a sole trader offers simplicity and full control but comes with personal liability – and according to the UK VA Survey in 2024 and, in fact, that pattern echoes back through a decade’s worth of UK VA Surveys. A partnership allows for shared responsibility but risks disputes. A limited company provides liability protection and potential tax benefits but requires more administration. LLPs offer a balance of flexibility and liability protection, while franchises provide support and an established brand at the cost of autonomy – but needs a lot of research in advance to ensure you choose the right franchise.
A final note:
It is worth noting that although limited companies & LLPs limit the liability of the shareholders if the business were to go bust or be sued, in reality, VAs rarely borrow money to finance the business.
Generally speaking, virtual assistants don’t require massive capital investment to build a business, there are no big assets involved as the main input is the virtual assistant’s own time.
Professional virtual assistants should be carrying insurance anyway to cover any accidents, professional complaints, cyber issues or damages they cause as part of their work (see our article on the types of insurance you should have in place to protect you), so as long as the virtual assistant’s cover is adequate, there shouldn’t be an issue.
Any bank offering loans to a limited company will seek personal liability and guarantees from the company’s directors – and this may not protect your home or any other assets.
If you would like help choosing a business model or would just like to bounce your ideas off of someone, do feel free to ask in the SVA Members Facebook Group, or you can set up a one-to-one call with us to chat it through. Book that here.