Whilst becoming a sole trader is often viewed as a less complicated and more attractive prospect when starting up a company, another great way to build your business is as a limited company. The word limited relates to your liability as a director in the company and allows you to keep your personal finances separate to those of your business.
Benefits of setting up a limited company
There are numerous benefits to starting a limited business, but here are a few of our top reasons:
Tax advantage – you can often enjoy lower tax as a limited company compared to a sole trader. As a director of a limited company, you may choose to take a small salary and instead receive your income via dividends, reducing your National Insurance Contributions (NICs) as dividends are not subject to NICs.
Positive professional image – within the business world, limited companies are often looked on more favourably than sole traders and seen, especially by customers and suppliers as being professional, whether that is in fact true or not.
Brand protection – By registering your company name at Companies House, your business and in turn brand are protected and cannot be used by anyone but you. This prevents anyone trading under the same name and potentially damaging your reputation and all your hard work. It also means that no new businesses can muscle in on your positive reputation by registering the name themselves.
Limit your personal risk – As the name suggests, your liability for the company is limited if the unexpected happens and something goes wrong. Your personal finances are separate, so if the worst happens, you shoulder no financial burden (unless fraud is proven) for the losses of your company. This protects you and your family as well as creating a clear divide between home and work.
So, that all sounds great, but what are the requirements of trading as a limited company? Well, many people think limited companies are more complicated and admin heavy to run, but with a bit of computer know-how and a good accountant, you can soon reap the benefits.
Essentials for your business:
- You MUST register at Companies House – this is an essential and your annual accounts must also be filed there.
- Your Confirmation Statement also needs to be filed annually to keep the Companies House records up to date on your business. This can cost as little as £13 online, or equally can be done the traditional way via a paper submission, but as with most things these days that can cost a bit more at around £40.
- National Insurance Contributions and Income Tax must be paid by your employees on their income.
With so many benefits, it is easy to see why so many people choose to start their business as a limited company.