Operating as a sole trader or a limited company are two of the most popular business models used by self-employed individuals. Often it can be difficult to choose which one is the right choice for you. So, to help make your decision easier, in our latest article we are running through some of the Pros and Cons of Running a Limited Company taking a closer look at the main benefits of a limited company, along with the potential drawbacks.
Pros and Cons of Running a Limited Company
The benefits of a limited company are enough to make it an appealing way to do business for most self-employed individuals.
Arguably, the biggest one of these advantages are the tax benefits on offer. Limited Companies are subject to Corporation Tax which is 19%. However, as a director of the company you can choose to pay yourself a salary set at minimum wage and take the rest of your earnings as dividends, which are taxed differently, and allow you to pay a lower amount of income tax.
If the tax benefits alone aren’t enough to entice you, there is also the issue of financial liability and the financial security that comes along with running your business as a limited company. Because the company is seen as a separate legal entity from any directors and shareholders, the company is solely responsible for any debts and financial losses. This means that your personal assets are safeguarded should your business come under financial strain.
Cons of Running a Limited Company
As with most things in life, running a limited company can also have some cons, although these are far outweighed by the pros.
First of all, you are in charge of your tax responsibilities, which is why it is prudent to work with a Limited Company Specialist Accountant to ensure that your finances are in order. Every limited company is liable for Corporation Tax on profits, which must be paid to HMRC, and if done incorrectly, you could lose out what you have saved in personal tax.
From business accounts to expenses and tax returns, there is a lot of administrative work involved with successfully running a limited company. This can be overwhelming for many individuals, yet another reason why many turn to specialist accountants, like the team here at Brookson One.
If you are looking to set up your own limited company, and take advantage of the benefits this has to offer, get in touch with the Brookson One team today for advice and guidance on all things related to the financial side or running a limited company.