Being a limited company can provide very profitable benefits when considered over becoming a sole trader. One of the main advantages of running your business as a limited company is, in some cases, it can help reduce costs.
Tax
Running your business as a limited company means that you are likely to pay less personal tax than if you operate your business in a different way. Limited company profits are subject to UK Corporation Tax, which is set at 19% for the current 2018/19 tax year.
This is 1% less than the 2016/17 tax year. By 2020, the Government would like to cut UK Corporation Tax down to 18%. If you are the director and shareholder of a limited company, you may choose to take a small salary and draw most of your income in the form of dividends.
By choosing to do this, you can minimise the amount of National Insurance Contributions (NICs) you have to pay because limited company dividends are taxed separately, and are not subject to NICs. Therefore allowing you to take home more in earnings.
Fees
Often, businesses operate as sole traders rather than limited companies because the start-up and running costs are perceived to be significantly lower. However, in some cases, you can form a limited company for a minimum of just £15.
Reduced liability
By operating as a limited company, you have the reassurance and added protection of ‘limited liability' which means that (assuming any fraudulent activity hasn’t taken place) you would not be personally liable for any financial loss your company may incur (unless any personal guarantees in place).
Status
You may find that having a limited company can provide more of a professional image which could mean that larger companies prefer to deal with limited companies such as yourself over sole trading companies or partnerships.
Your company name is protected by law, once you register your company with Companies House no one else can use the same name as you, or anything deemed to be too similar.
Shareholders and Higher Pay
A limited company can declare various classes of shares. This means you can easily sell stakes in the company or transfer ownership of shares.
If a shareholder wishes to retire, sell their shareholding, or dies, it is far easier to transfer ownership of a limited company than a non-registered business structure.
By operating as a limited company, you can typically expect to take home around 75% - 80% of your contract. This could be as much as £15,000 per year more when compared to operating as an umbrella company.
You could also claim on a vast range of expenses. Once something is solely classed as a business cost, it can be claimed back on expenses. This includes expenses such as accountancy fees, equipment, software, phones, travel, Internet and much more when claiming through a limited company.
If you are trying to decide what company structure is best for you or you have been operating as a sole trader and you want to move to a Limited Company get in touch, and we can offer you advice. You can call 01623 490120 or email