New businesses often start as a side job or hobby against full-time employment. With success, the self-employed business takes flight, and becomes the main source of income. The simplicity of working as a sole trader is why most entrepreneurs go into business for themselves; it means less time dealing with HMRC or Companies House.
Limited Liability
Firstly, becoming a limited company means you are no longer personally liable for any debts that your company may suffer. As a sole trader, you don’t get this kind of security. This means that should things go wrong, you won’t find yourself out of pocket. Keep in mind that the success of your business doesn’t just dependant on your efforts.
Business Brand Security
One thing that’s great about becoming a limited company is that you can secure the face of your business. This is useful if you decide to launch a website, create a logo, or produce business cards. By going limited, the ability to protect the name of your brand ensures no one can start a business that mirrors your own, so you’re easily recognised as a brand.
Tax Efficiency
As a sole trader, you face the issue of being taxed on your profits. If you find yourself earning over £150,000 in income, up to 45% of this you may find yourself paying in taxes. Before this, you’d pay taxes from earning over £11,000, however, a limited company arrangement sees more benefits such as paying less in personal tax. By going limited, you’ll pay corporation tax on any profits that your business makes.
Opportunity for Growth
As a limited company, you can expand your company by introducing new employees. This can be a little daunting, but it’s as simple as adding them to your PAYE scheme. As a sole director and shareholder of your company you have complete control. And should you wish, you have the ability to team up with other shareholders.
With the possibility further down the line that your company becomes insanely successful and you want to cash out, the whole company can be sold.
The Ugly
Every year as the director of a limited company, you’ll need to file returns with HMRC and Companies House. Along with this, certain information will be held on the public record with Companies House and can be viewed by anyone who requests it.
The first hurdle, however, would be to set up the company, which can be a challenge in itself. Thankfully this has been made very simple and can take a matter of minutes at the cost of £10.
Knowing whether or not to change your business to a limited company maybe overwhelming, but if you find yourself needing advice for the what’s, whys, when’s, and how’s, Diamond Accounts offer free consultations and can guide you in the right direction.