Why Should I go Limited

Why and when should I go Limited rather than remain a Sole Trader?



Limited company advantages. ... This means that personal assets
aren't exposed – you only stand to lose what you put into the company.

Broadly speaking, limited companies stand to be more tax efficient than sole traders, as rather
than paying Income Tax they pay Corporation Tax on their profits

A limited company is its own legal identity, therefore as a shareholder your liability is limited (hence the name 'limited by

As a sole trader, there is little distinction between you and the business. Any business debts become your debts and your
personal assets - including your house - are not protected

SOLE TRADER                                                           LIMITED

Income Tax 20%                                                   Corporation Tax 19%

Personal Allowance tax free £11500                    Dividends tax free £2000 per year

                                                                              Dividends within Basic Rate Tax Band 7.5%

Pension contributions have no tax charges,          Pension contributions is an allowable expense

but you will still be charged National                   through the business -NO TAX IS PAID. No

Insurance at this year’s rate 9% before the           National Insurance is paid either saving a

contribution is paid out                                         further 9%

Can use a personal bank account                         Must legally have a business bank account

National Insurance cost £2.95 x 52 weeks          National Insurance cost is only charged on

for the first £8424 earned, thereafter 9%             salary not dividends at the rates as per sole trader.

of income upto £46350

A tax return must be filed annually                     In addition to the tax return, you must file accounts and 

                                                                            corporation tax annually

Personally liable for everything                         Limited liability

As well as your finances, you will need to keep in mind any legal disputes. If you are a sole trader, then you will
need to make sure that you have various different small business insurance policies in place to avoid getting sued personally. 

As in the eyes of the law, you and your business are the same, without insurance, you will be personally liable.

As a Limited company, please note that a personal tax return should still be submitted to HMRC on an annual basis.

This would be as follows on a personal income of £40,000 for both scenarios.

Personal earnings through a Limited company would attract personal tax of around £2500

Personal earnings as a sole trader would attract personal tax of around £8500

Please remember the additional allowances within a Limited
company that will be deducted from profits before any tax is charged, versus
sole trader where tax is paid then you pay your bills.

When should I make the change?

The most difficult challenge is knowing when its the right time for you to turn from sole trader to a limited company. 

Not every sole trader will experience the enormous tax and legal benefits that are possible. 

In my experience, there is no exact figure that small businesses should use as a benchmark,.

It all depends on your industry, the nature of your business and what your aspirations are for your business.

However, there is one major advantage that can assist small business of all varieties: it gives the company name some authority.

It makes your business more appealing to larger companies you might have the ambition to work alongside. 

Many would rather work with a trustworthy limited company than chance working with a sole trader. It proves you 

can be relied upon. 

*****Please call today if you want to learn more.*****

0 0

Leave a comment