Should I set up a Limited Company?

(2 minutes to read)

Being a sole trader is the most common way to operate a fledgling business. However, as your freelance business grows, it is likely you will be better off setting up a Limited Company. This quick guide gives a run down of the benefits of doing so.

Why you should you set up a limited company?

Tax

The main reason most sole traders decide to set up a limited company is simple – tax advantages and the resulting increase in take-home pay.

A sole trader uses standard income tax bandings for all income – after expenses, they are essentially taxed as an employee. As profits increase, this can be increasingly costly.

A limited company pays dividends and salary. This means that by working via a limited company, your can draw a small salary within your personal allowance, paying no personal tax and minimal National Insurance. Dividend income is taxed separately and not subject to National Insurance.

Pensions

There are generous tax breaks available to limited companies when paying into a pension. This means that, in addition to paying less tax on your immediate income, you can also save additional tax on the income you choose to save for retirement. You can read our contractor pensions guide for more information click here.

Limited Liability

A Limited Company is a separate legal entity and as the name suggests, your liability is limited in the event the business acquires genuine debts or makes a loss. As long as no fraud has taken place and you have used to company’s money wisely, only your company’s assets are at risk. If you are operating as a sole trader, you are personally liable for any losses made by your business – so you are risking your personal assets if things go wrong.

Credibility

It might seem unfair, but a limited company often has greater credibility in the eyes of clients and suppliers. Being the Director of your own limited company can make it easier to secure contracts, make your business appear bigger than it is and make your company appear more reputable. Indeed, some organisations will only deal with limited companies and won’t engage with a sole trader.

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Funding

Banks and investors will often have more confidence investing in a separate legal entity than in a sole trader. If you are looking to secure business finance, the credibility of your own Limited Company can be a big help.

Scalability

If you want to bring a spouse into the business, it is far easier to do so under the Limited structure – you can pay them a salary through the company payroll and bring them on as a shareholder. If you ever end up expanding the company and growing it into something bigger, you can do so easily.

Future-Proofing

If you ever want to retire or sell your shareholding, it is far easier to transfer ownership of a Limited Company than a non-registered business.

Moving from sole trader to your own Limited company can be a big decision. For more information, or to make the switch, speak to one of our specialist contractor accountants on 01442 795 100 or email jaime.thorpe@dolanaccountancy.com.

Why Dolan Accountancy?

Dolan Accountancy was set up by Simon J Dolan, the man behind the well-known brand SJD Accountancy. With over 25 years experience in the contracting marketing, Dolan Accountancy has the heritage, reputation and credibility you can trust. Working closely with our sister company, ContractorUmbrella, it means we can offer one low cost, fixed fee package at £95 + VAT per month. This gives you the flexibility of using both our Limited Company Accountancy Services and our award winning Umbrella Service, for one inclusive cost. We don’t believe in tiered packages or hidden extra fees, instead we aim to give you everything you need, including:

  • Free Company Formation – This is where it all begins. Once you have decided on an available name, we will form your company free of charge (if using our accountancy services) and it will be ready for you to use in as little as three hours.
  • Free use of ContractorUmbrella – With changes in Public Sector IR35 Legislation we understand that sometimes you are required to contract via an umbrella company. We will keep your limited company ticking over, while you work margin free via our sister company, ContractorUmbrella.
  • A Dedicated Accountant – Your accountant will be there for any company or personal tax advice that you require. We will never outsource work, even to internal teams.
  • Free Access to FreeAgent – The founder behind the multi award winning FreeAgent platform was one of Simon’s first clients, therefore it only seems fitting that we offer all of our clients access to FreeAgent, free of charge.
  • Free Business Banking – We have decided to waive our commission so our clients can use CashPlus free of charge for the first year, saving you £69.
  • Unlimited IR35 Status Reviews – We will review all of your contracts for IR35 purposes and provide you with our professional opinion as to its status.
  • Free Registered and Director’s Service Office Address – Sometimes you just don’t want your home address on display at Companies House. When you sign up to our accountancy services, we will offer the use of our address as an alternative.
  • Your Business and Personal Taxation Needs – This includes Company Accounts, Director’s Personal Tax Return, VAT Returns, Payroll, Corporation Tax and Dividend advice, to name just a few.

If you’d like to find out more about how Dolan Accountancy can help you and your business, please give us a call on 01442 795100 or email sophie.lewis@dolanaccountancy.com or jaime.thorpe@dolanaccountancy.com.

Dolan Accountancy