Setting Up a Sourcing Business: Do You Need to Be Ltd?

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Setting Up a Sourcing Business: Do You Need to Be Ltd?

“Do I need to set up a Ltd company to operate my sourcing business?” – something we often hear from new sourcing agents and deal packagers coming through to us.

The short answer? No, you don’t need to set up a Ltd company to start sourcing.

As with most things in the property sector – or business generally – the answer isn’t always a simple yes or no. There are particular factors you need to consider before making your final decision.

Ltd Company or Sole Trader

The legal requirements around operating as a sourcing agent or deal packaging business doesn’t explicitly state you need to operate as a Ltd company. Technically, you can begin sourcing as a sole trader – and many do whilst they test out the water.

IMPORTANT! Seek Advice from an Experienced Accountant Before Starting

Whichever route you decide it’s important you seek advice from a qualified account first to determine the best set up for your situation. They will need information from you about your current situation to advise as to which may be more beneficial to you from a tax perspective. 

Compliance Still Applies

Sole trader or Ltd, you’re still subject to the same compliance rules as any business.

That means understanding how to source compliantly (due diligence, fees, onboarding investors, marketing your business, presenting deals etc.); having the right documents and contracts in place, the right training for data protection and anti-money laundering, registering with the ICO and a Redress Scheme (TPO or PR), having relevant PI insurance (and PL depending on what you’re doing), as well as being registered with HMRC.

Liability

Operating as a sole trader means any legal or financial risks fall directly on you as an individual. A Ltd company, on the other hand, provides a layer of personal liability protection, effectively separating your personal finances and assets from the business.

Credibility

It’s possible that Investors and clients will more likely view a registered Ltd company as professional and trustworthy, compared to a sole trader.

Having Ltd company can add a layer of legitimacy that may not come directly from a sole trader business, although it’s also important to point out that if you follow all compliance steps and act trustworthy by being open and honest with your investor/client, it shouldn’t matter whether you are a Ltd company or not.

It is estimated that 99% of sourcing agents and deal packagers operating right now in the UK – many trading as a Ltd company – are not compliant or meeting expected standards of a property business.

Tax Efficiency

A Ltd company could offer more tax advantages compared to operating as a sole trader. For example, profits you make through a Ltd company are taxed at a corporation tax rate (currently 19%), compared to the potentially higher income tax rates charged on sole traders.

Growth Potential

If you’re serious about scaling your sourcing business, a Ltd company structure can make things much smoother. It enables you to bring in shareholders, separate operating roles from ownership, and better manage finances.

Protection

A Ltd company provides “limited liability”, which means your personal assets are protected if something goes wrong with the business.

HMRC Sourcing Agent Fine List

Compliance and Penalties

Please remember, whether you operate as a sole trader or Ltd company, compliance is non-negotiable, and HMRC are cracking down on sourcing and deal packaging businesses that sidestep regulations.

Just last year, we reported how HMRC were fining sourcing businesses that had no registered company on Companies House and no website presence; yet they were still found and fined for failing to register with HMRC.

Read our full findings here: https://napsa.org.uk/hmrc-aml-fines-sourcing/

Whether operating as a sole trader or Ltd, you must register with HMRC and comply with their regulations – but please make sure you have all other compliance in place.

Failing to do so? They will find you.