A limited company can save you time and money – it’s a smart way to get paid for your work. To decide whether this is the right option for you, it is important to consider the nature of your business, clients and ambitions against the pros and cons of this option. The key points are detailed below, but we would love to invite you in for a tea and a chat to fully go through the options.

There are many advantages to running a limited company over operating as a self-employed sole trader. Importantly as a company director, you are likely to pay less personal tax. But equally important is that you get to establish a business presence and brand that isn’t possible as a sole trader.

In summary significant benefits include:

  • Tax efficiency – due to the ability to receive income in the form of both salary and dividends
  • Reduced risk – liabilities (e.g. debts) of the business are separate from that of the owner, reducing the personal risk if things go wrong
  • Image and perception – limited companies tend to convey a more professional image of the business
  • Flexibility – since equity can be sold, limited companies are easier and more flexible when it comes to raising investment and funding.

The company is formed and registered (incorporated) at Companies House – We can form the company for you also giving guidance on the legal roles involved, the share set up and distribution.

The limited company will come with certain standard legal documents that govern what it can do and what business it operates.

The directors run the company and the shareholders own the company. Usually for a small business these are the same person or people but the roles are quite distinct.

Directors take on the legal responsibility of running the company and can distribute the profit of the company to the shareholders in the form of interim dividend. Shareholders own the company and are entitled the dividend when declared.

Small companies pay Corporation Tax on their profits. When compared with the higher rates of Income Tax plus National Insurance on self-employment trading through a limited company can save a lot of tax.

Usually for small entities, the business owners is a director and shareholder and the company will employ them allowing then to take money out of the company as a wage (because they are an employee) and a dividend (because they are a shareholder).

With the right tax planning this can have significant tax savings.

Pros:

  • Pays only Corporation Tax on its profits (So no national insurance)
  • Owners are protected from debts of the business
  • Careful use of salary and dividends can reduce your personal tax bill
  • Frequently presents a more professional image than self-employment

Cons:

  • Have to file accounts with both HMRC and Companies House
  • You will have to get used to submitting your Confirmation Statement on annual basis
  • There are more rules and regulations than with self-employment
  • Both the company and director have to file their own tax returns
  • The money owned by the company is not yours. There is a limited number of ways to take that money out of the company

Getting started

Setting up as a limited company with All Tax Accountants is a simple process. It all starts with these three easy steps. Don’t worry, we will be here to help every step of the way.

1. Choose your company name – but check Companies House to see if someone else doesn’t already own it!

2. Decide who the director(s) will be.

3. Decide the share structure and who will own them.

Get in touch today to book your free consultation where we can answer any specific questions you have and kick-start the incorporation process.