Three main advantages of a limited company
Understanding the advantages of a limited company from the outset of business start-up can be very beneficial when deciding on a business structure. Small to medium sized firms make up around 99 per cent of all UK businesses, and one of the many considerations when setting up is whether to establish as a limited company from the outset, or trial sole trader status.
Many choose sole trader for ease. The administrative burden is lower – you simply inform HMRC you are self-employed and fill out a self-assessment at the end of the year. The full profit retention can also be a bonus. However, it is worth considering the advantages of a limited company before making a decision.
No personal liability – as a sole trader, you are liable for any debt accrued in the course of work, just as you would be in your personal life. This means your personal assets such as your vehicles or your home can all be at risk from creditors looking for debt settlement. One of the real advantages of a limited company is the limited liability element. If any financial losses are made by your business, your home and possessions will be safe from creditors.
Increased access to funding – it can be difficult for sole traders to secure funding, from either a bank or alternative lending sources. For limited companies, there is more chance of success in gaining funding – of course, subject to the right business plans being in place and accounts being in order. A limited company status can often look more professional too, both to lenders and to prospective clients.
Lower tax burden – as an owner of a limited company, you will pay less in tax and National Insurance contributions, as the NI will be applied to the whole of your income. You will pay corporation tax on the profits in your business, which currently stands at 19 per cent, and if the current government gets its way, this is likely to reduce to 17 per cent by 2020. Most company directors take a small salary and then dividends from the business as additional income.
There will be additional costs in the form of setting up a limited company, and if you choose to use an accountant to prepare your annual accounts. However, the other advantages of a limited company outweigh this. You can of course set up a limited company yourself, but money spent on getting professional help to ensure you are setting it up correctly will help avoid any costly mistakes.
Thinking of registering a limited company? Get in touch now for help and advice on 01827 54944.