The advantages of forming a limited company
Even though the sole trader route is commonly known as being self-employed, it is one of the most prominent ways of running a business in the United Kingdom. There are amazing advantages of operating via a limited company. Some of the benefits of starting a limited company in the UK are mentioned here. Starting as a sole trader is undoubtedly one of the best ways to start a business here. You need to inform the HMRC that you are self-employed, and you would be accountable for your business activities through the annual self-assessment tax process. Setting up the business as a limited company involves a more challenging formation process and the financial and administrative responsibilities of running the limited liability company.
Tax
One of the best parts about running a limited company is that you can pay less personal tax as compared to a sole trader. Limited company profits would be subjected to UK corporation tax, currently set at 19 per cent. Suppose you are the shareholder or director of a limited company. In that case, you might choose to take a small salary and draw most of the income from the business in the form of a dividend. When you do this, you can minimise the amount of National Insurance contributions you have to pay as the limited company dividends are not subject to the National Insurance contributions. It means that when you are running a business as a limited company, you can take home most of your earnings.
Separate entity
A limited company is completely a separate entity from the owners. Everything from your bank account to the ownership of the assets and the involvement in tenders and contracts are completely company business and separate from the interest of the company’s shareholders. If you are running a sole trader business, your business would be treated as a single entity for tax and all the administrative work.
Limited liability in
Running your business as a limited company means that you would have the reassurance of limited liability, and assuming that no fraud has taken place for limited liability will mean you would not be liable for any of the financial losses made by the business. A limited company can give you perfect protection if things go wrong.
Professional
A limited company can provide a professional image in some industries and businesses. Companies prefer to deal only with limited companies instead of sole traders if you are doing business with large companies.
Funding
Funding can be challenging for all types of new businesses. But because limited liability companies have a distinct identity from the owners, it is easier for the company to secure the business finance than it is for the sole trader. Once you register the company with the Companies, your company name will be protected by the law. No one else can use the name as you are having or anything deemed to be similar. Being a sole trader, someone else can trade under your name as you cannot do anything about it, and this could damage your business in some cases; you have to also go through costly and time-consuming efforts.
