Should I be self employed or start a Limited Company?
When you start your own business this will be one of the first things that you need to figure out. Many people will just opt for self employed because it seems simplest, but there are pros and cons to both and it is a good idea to figure out which suits you best.
As a general rule, as your profits increase it will be more tax efficient to be a Limited Company. I’ve put together a quick list of the pros and cons associated with each, but if you are not sure which would be best for you, then it is a good idea to get some professional advice. Yours truly would be happy to have a chat about it
Self Employed / Sole Trader
- Quick and easy to set up, with no requirement for professional support (although you might still like some).
- You can register yourself online with HMRC.
- You need to submit a self-assessment each year - you can do this yourself, but it has some tricky elements, so you may like to have a professional do it for you, but a self-assessment tax return done by a professional is still less expensive than a full set of Limited Company accounts.
- You pay income tax and national insurance on your profits (subject to personal limits). Your tax can be paid yearly or you can set up a payment plan. Once your profits reach a certain level you may need to make payments on accounts in between annual payments.
- There is no requirement to disclose details of your business and finances to the wider world.
- You will be personally responsible for any losses your business makes - this means that your assets could be at risk.
- You can take money out of your business as and when you want to.
- You can still employ people and be VAT registered even if you are self employed.
- You have to register with Companies House and have Articles of Association drawn up. You may need professional help with this.
- As a Limited Company your business must complete Annual Accounts and a Confirmation Statement every year – most companies use a professional to compile these for you.
- By forming a Limited Company your are protecting your business’s name – no-one else can then register that name.
- Your Limited Company Accounts as well as other details about the company are publicly available.
- You will pay Corporate Tax on all profits.
- The Limited Company is a separate legal entity with a Director or Directors who are responsible for decision making in the best interests of the company.
- Any profits or losses made belong to the Company, not the Directors.
- In order to receive a salary as a director you have to register the company as an employer. You will pay tax and NI on your salary (subject to personal limits).
- As a director you can also pay yourself a dividend if the company makes a profit.
- Directors of Limited Companies are NOT personally liable for the debts of the business.
- Being a Limited Company can make you appear more established to new suppliers or customers.
- Finally Directors will also need to complete a self-assessment tax return to declare their income from salary and dividend.
Contact me if you want to discuss the most appropriate route for your business.