An alternative to operating as a sole trader is to set up as a limited company. This is a fairly simple process to initiate, but it may not be appropriate for all businesses. If you do set up a limited company as a company director, there are additional responsibilities and filing requirements over and above those of a sole trader. However, there are benefits in terms of financial planning.
There are various other advantages and disadvantages to operating your business through a limited company:
- Tax planning – although limited company profits are subject to Corporation Tax, it can be beneficial to pay yourself dividends rather than salary since there are tax-free dividend allowances that you can take advantages of.
- The business may have a more professional appearance and better reputational image to potential customers and help grow the customer base
- Potential suppliers may be more inclined to deal with you and offer discounts and/or credit terms if the business has a more credibility
- There is limited liability to the business. Should your business be unsuccessful, only the assets of the company can be used to settle any liabilities. Your personal assets are therefore protected
- There is legislation surrounding succession planning – should you wish to pass your shares to family or sell the business, doing so through a limited company makes the process more robust
- A limited company may look more secure to providers of finance or potential investors, thereby facilitating expansion or improvement
- There are many more filing requirements which have to be met, and fines for failure to meet the deadlines.
- Running a limited company can be a bit more expensive as it is likely you will need to employ the services of an experienced accountant. HMRC requirements are technical, so professional help should be sought.
- The accounts of the company, to a certain degree, are available on public record. It is possible to see details of filed accounts and some personal details of the directors of the company on the Companies House website, which is available to anybody.
- If the company exceeds certain limits – revenue, employees and balance sheet - there may be a requirement for an audit to be completed. This is generally an expensive procedure and involves a thorough inspection of the company finances by audit professionals to assess whether the accounts give a ‘true and fair view’ of the business.
So, it is a very important decision to change your company status to Limited if you are presently operating as a sole trader. There can be significant benefits, but these come at a cost, so it should not be taken lightly. We can offer in-depth advice as to the implications of changing company status.
Should you decide that operating your business through a limited company is the best course of action for you, we at Suretax can support you.
We offer a complete service for limited companies which incorporates all of the following:
- Preparation of limited company accounts from source records
- Corporation tax calculations and filing at HMRC
- Filing limited company accounts at HMRC and Companies House
- Preparation and filing of VAT returns
- All limited company payroll preparation and filing
- Self Assessment filing for company directors
- Preparation and filing of Confirmation Statement at Companies House
- Tax advice
- Business planning and management accounting
Our services are provided by experienced accountants to the highest standards. Our fees are very competitive and offer excellent value for money. Call us any time on 0151 272 0211 for a free quotation.