Running a business brings with it plenty of head scratching – there are always lots of decisions to make
One of the first and most important ones is how to structure your business.
The main choices are operating as a Sole Trader or setting up a Limited Company. While both have their merits, there some distinct advantages in becoming a Limited Company
Tax Efficiencies:
- By far one of the biggest advantages. Corporation tax rates (currently 19% or 25%) are often lower than the income tax rates
- As a director/shareholder, you can pay yourself a combination of salary and dividends, which means you can reduce your overall tax bill.
- As well as the income and tax benefits, you will also be able to claim a wider range of business expenses through the company.
Limited Liability Protection:
- As a sole trader, you and your business are legally the same. That means you’re personally responsible for any debts or legal issues.
- With a company, your business is a separate legal entity. Your personal assets (your home, savings account etc) are protected should the business run into financial trouble. This offers huge peace of mind and is a big reason why many entrepreneurs make the switch.
Image and Credibility:
- Having “Ltd” after your business name can boost your credibility, especially with larger clients, suppliers, investors and potential business partners.
- Many agencies prefer to work with Limited Companies, as they are often perceived to be more secure than sole traders.
- Being registered with Companies House can make your business look more established and trustworthy.
Opportunities:
- A company structure can make it easier to raise investment or secure funding (for example bringing in additional shareholders)
- As a Sole Trader, these options are (ironically) limited. If you’re planning to grow beyond a one-person operation, incorporating can offer more flexibility.
Admin Benefits:
- Running a company means separating personal and business finances – this actually makes accounting cleaner and more straightforward.
- You will be required to open a separate business bank account, and submit annual accounts to Companies House.
- Although it does come with more admin, using the right accounting software and the correct accountant makes the process more manageable – it keeps your finances organised.
Forming a Ltd Company is not always necessary from day one, especially for side projects or very small operations. However if you are planning to:
- Earn more than £50,000 a year
- Take on clients who expect a professional structure
- Protect your personal assets
- Scale your business in the long term
…..It’s definitely worth considering going Ltd.
We help start-ups and small businesses register as Limited Companies and manage all the financial admin that comes with it.
Get in touch with us today for advice tailored to your individual business goals