To be Limited or not to be Limited - that is the question!


If you’re thinking of starting a business or if you are currently a sole trader but aren’t entirely sure whether you should trade as a limited company or not, read on to find out what it means and the pros and cons of doing so.

What does it mean to be a Limited Company?

Setting up as a limited company means your business is separate from you in the legal sense; it is owned by shareholders and run by directors. Any assets, therefore, belong to the company rather than you personally and income is available to you as a director/employee as a combination of salary and dividends.

What are the advantages of being a Limited Company?

There are many reasons why self-employed people opt to be a limited company rather than, say, a sole trader, but the main one is liability - as a limited company you are not personally liable for your company. If it gets into financial trouble, you are only liable for the nominal value of your shares; your personal assets are not at risk. Put simply, if you are the only shareholder and you hold one share worth £1, you are liable to pay £1. Sole traders are not afforded the same protection and may have to part with personal assets to pay debts.

The other major benefit is tax. Where limited companies pay 19% corporation tax on profits and can minimise personal tax and National Insurance contributions by taking a mix of salary and dividends, sole traders have to pay between 20­–45% income tax on all taxable earnings as well as National Insurance. So, depending on your profits, you will likely be better off money wise as a limited company, but not just because of tax. There is also an element of professionalism. Depending on the industry, some clients may prefer to work with limited companies rather than sole traders.

What are the disadvantages of being a Limited Company?

Like everything in business, there are advantages and disadvantages to going limited. For one thing, all limited companies have to be registered with Companies House, which costs money and thus bumps up your start-up costs; company details are also freely available to the public. But, the main downside is the paperwork - you need to file company accounts with Companies House and HMRC every year, which, unless you know finance, is best done by an accounting professional.

Furthermore, given that limited companies are separate legal entities, they require their own bank account and finances must be kept separate from your own – you can’t freely take money out of your business. You’ll need to set-up payroll to pay yourself salary every month, record all transactions and keep track of receipts and expenses.

It sounds like a lot and can be hard to get your head around at first, but it isn’t as bad as it sounds. Although the good news is, you don’t have to struggle on your own. Hiring a bookkeeper is a great way to ensure your finances are accurate and in order; they’ll also make sure you are making the most of your money and claiming all the expenses that your company is entitled to. Want to know more? Contact Rebus Bookkeeping on 07720910886 today.

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