Advantages of Going Limited
If you are considering the limited company option, there are a number of reasons why it could be a very good move. Now, we're not denying there are not a few downsides to forming your own limited company (we promise there are only a few), but lets start with the numerous advantages to be gained.
There are lots of things to think about, and most important of all is your own personal preference. You might want the simplicity of not being a limited company, or you might prefer the security of having ‘limited liability’. In order to make that decision you must have all the information at your fingertips, which is where Easy Accountancy can help.
- One of the key reasons for going limited is the possibility of significantly reducing your tax bill – Any accountant will tell you that working through your own limited company is the most tax efficient way of trading. One of the main ways is via tax planning (see below for the example) it essentially means you get to plan when you withdraw your earnings and how you invest for your companies future growth. You will also make savings around National Insurance. As a sole trader you pay National Insurance on all of the profit you make for your business, however as a limited company you allocate yourself a set salary and only pay National Insurance on this. The remainder of your profit remains within the business, you can then withdraw any of the money at any time (this is known as dividends) and not pay any National Insurance on top, this way avoiding to pay a higher rate of tax.
- Better tax planning opportunities - e.g. lets say you make £60,000 in the 2010/2011 tax year, if you are a sole trader you'll pay tax on the whole amount (less tax allowances). However, if you are limited you get to choose how much you withdraw each year and only pay tax on what you withdraw. So if you only took £40,000 you could leave the other £20,000 in the bank account, which might be handy if in 2011/2012 you had a bit of a slower year and only earned £20,000 in new profits it would mean you also come under the tax threshold.
- Some customers, usually PLCs or larger limited companies will only work with other limited companies so you might miss out on work if you aren't limited.
- Many of the costs associated with managing and operating a limited company are no longer much greater than with a non-limited business. In general, at least from the perspective of taxation and accountancy, changes to legislation over the last few years have meant much lower costs associated with limited companies.
- You are separate from the company, so your personal possessions will not be at risk. The main benefit of trading via a limited company has always been your ‘limited liability’. As a sole trader or other non-limited businesses, your personal assets can be at risk if the business fails for any reason and leaves debts, but this is not the case for a limited company. As long as the business is operated legally and within the terms of the Companies Act, the personal assets of the company’s directors and shareholders are not at risk.
- Operating as a limited company often gives suppliers and customers a sense of confidence in your business, by being limited it gives the appearance of being slight larger.
- There is no legal requirement for a limited company to start trading within any set time period after it is set up incorporation. This means that forming a limited company is a simple and low cost way to protect your business name. Once your proposed company name is registered as a limited company, it is protected by law and no one else is allowed to use it.
However good the advantages might seem, there are always of course some potential disadvantages, which might mean that going limited is not the best option for you. So better to be aware of them up front. Visit our Disadvantage of Going Limited page. Furthermore, for more information on what to consider before setting up on your own, take a look at our Starting a Business page.
For more information or a general chat about your business plans call us on 0500 234111 / 01442 275767 or email firstname.lastname@example.org