While being a sole trader (AKA being self-employed) is probably the most well-known route when it comes to running your own business, many people are starting to look into how they can register as a limited company instead. But why are people considering making such a change? And what are the benefits of doing so?
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The administrative tasks and attention to detail that come with setting up a limited company may seem extremely difficult, but with those added responsibilities come several advantages that you may not be aware of.
So, if you’re thinking of leaving the sole trader life in favour of registering as a limited company, what can you expect to get back in return? And would it be the right move for your company?
To make the best decisions possible for your business goals and individual needs, here’s some insight into what being a limited company entails.
Limited Companies are Cost-effective
People overestimate the costs of registering a limited company and its name. In fact, you can register a limited company name for as little as £12. And depending on the salary you choose to pay yourself, you won’t be required to pay any income tax or national insurance.
Instead, all limited companies are required to pay something known as a corporation tax. This tends to be far less than the taxes that a sole trader will incur. In addition to reduced taxes, you’ll have the flexibility to pay yourself by a standard salary or through dividends.
This means that your salary can simply be transferred from the company account to yours, or if you prefer, you’ll even have the flexibility to take dividends from your company profits. In light of recent changes in tax regulations, it’s important to note that businesses need to stay informed about evolving financial practices, including the shift toward digital taxation. Making tax digital for corporation tax is a noteworthy development, emphasizing the growing importance of technology in streamlining tax processes for businesses.
Limited Companies can Help to Reduce your Legal Liability
The separation of personal and company assets in addition to reduced overall legal liabilities is one of the most important benefits of starting a limited company. For instance, should your company encounter financial difficulties or a tricky legal situation, your own personal assets are a completely separate entity, and are therefore completely protected.
The debts and legal obligations of your limited company are the sole responsibility of the company as a whole and not the company owners, directors, or shareholders. The unique nature of a limited company protects your personal finances and possessions in the event of insolvency.
Limited Companies are Considered more Credible than Sole Traders
Unfortunately, when it comes to handling large-scale jobs, contracts that contain sensitive information, and other complex jobs, sole traders are far less likely to be considered than a limited company is.
A limited company allows incorporated businesses to find you on their respective radars, as they feel more comfortable working with businesses of their ilk. By setting up as a limited company, you expose your company to a whole new avenue of potential income and future business relationships.
This in turn offers you stronger brand recognition, which leads to greater awareness and a stronger reputation within your own industry.
