06 Jul Why Become a Limited Company Instead of a Sole Trader?
Why Become a Limited Company Instead of a Sole Trader?
Working for yourself is one of the greatest pleasures available to a working person. It gives you the freedom to do what you want to do in the way you want to do it, and set your salary as you see fit. However, when it comes to the accountancy side of things, many of us are a little lost.
Indeed, one of the most common questions we’re asked is as a self-employed individual, whether sole trader or limited company status is best for them. In this guide, we’re going to make the case for forming a limited company, with five key reasons:
- Tax – Ah, tax – the enemy of the self-employed individual. Put simply, limited company status means you’re likely to pay less personal tax than a sole trader. Though limited company profits are subject to corporation tax, as a director or shareholder of a limited company you can choose to take a small salary and draw most of your income in the form of dividends, which minimises your NI contributions, meaning greater take-home money.
- Reduced liability – The term ‘limited company’ refers to the limited liability that a company faces. Assuming there’s no fraud, you as a person will not be liable for any financial losses made by your limited company.
- Pensions – A limited company has the ability to fund its employee’s executive pensions as a business expense, which greatly lowers their cost and offers a tax advantage over those who are merely self-employed.
- Naming rights – As a sole trader, you can call your business whatever you like, but it’s also possible for somebody else to name their business the same as yours, at which point you’d have no recourse. As a limited company, you register your business with Companies House, and your name is protected by law.
- Funding – If you’re looking to attract funding to your business in the future, limited company status is essential. Because a limited business is a distinct entity from its owners, it’s easier to introduce new shareholders and change ownership structures than it would be as a sole trader.
Of course, those are just a handful of the benefits that limited company status can bring to your business. Find out more about our limited company account services now.