Limited Company vs Sole Trader
While operating as a sole trader is a simple and cost-efficient way to start a business, there are significant advantages to running your own limited company.
A limited company is a separate legal entity from its owners. As such, you’re protected by limited liability. Should your company go into debt, you’re only legally responsible up to the extent of the nominal value of your shares.
Running a limited company offers a more tax-efficient way to operate. Relative to sole traders, you’re able to pay a lower rate of income tax and NICs, as well as claim a wider range of allowable business expenses.
Being registered as a limited company also lends credibility to your company. This could lead to increased business opportunities, particularly for contractors, as it isn’t uncommon for established organisations to specify that they’ll only work with freelancers operating through their own limited company.
You’ll also benefit from easier access to funding. As a separate legal entity, your company presents a lower risk to lenders—which increases your chances of obtaining external financing at a lower interest rate, compared to sole traders. Additionally, you have the option of raising funds through selling shares.
What is a Limited Company?
What is a Limited Company?
Limited companies provide numerous benefits, from tax savings to limiting your liability.
But the first step is to understand what a limited company is exactly, and whether setting up such a company can help you achieve your goals. This article will clearly explain the pro's and con's so you can make an educated decision.
In a nutshell, a limited company is a private company that's a separate legal entity from its owner(s). For freelancers and contractors, a limited company is one of the three main business structures that you may use to run your business (the others being sole trader and umbrella companies).
In this article, we walk you through:
- What a "separate legal entity" means
- The different types of Limited Companies
- The pros and cons of setting up a Limited Company
- How to start a Limited Company
Deciding between Sole Trader vs Limited Company vs Umbrella
Deciding between Sole Trader vs Limited Company vs Umbrella
If you're planning to start out on your own, one of the most important decisions you'll need to make is figuring out how you should structure your business.
As a freelancer, contractor or small business owner, there are three main types of legal structures you should consider:
- Sole proprietorship
- Limited company
- Working through an umbrella company
It's a decision that requires careful consideration, and it's important that you seek advice from qualified professionals when you weigh out the pros and cons of each business structure. To begin with, you need to have a good grasp of the basics - and here's where our guide comes into the picture.
What are the differences between Directors, Shareholders & Employees?
What are the differences between Directors, Shareholders & Employees?
Directors
- Directors have the responsibility of running and managing a Limited company;
- Directors are responsible for ensuring all company accounts are filed with HMRC and Companies House;
- Directors must have board meetings to decide on company activities ‚- including taking a dividend.
Shareholders
- Shareholders are not involved in the running and managing of the Limited company;
- Shareholders are involved in some decisions, like the change of company name, however not day to day running;
- Shareholders are entitled to take dividends from the company, as long as these can be justified from their role in the company.
Employees
- Employees work for the Limited company and are employed. They will receive a monthly salary from the Limited company.
- They are not part of any decision making process and do not have any rights to dividends.
What is a SIC code?
What is a SIC code?
The SIC code is a five-digit Standard Industrial Classification code. These codes are used by government bodies and agencies to systematically identify and categorise the principal business activities of companies operating in the UK.
How do I transfer/ change a company name?
How do I transfer/ change a company name?
You can change the name of your limited company through a third party (such as a company formation service), or directly with Companies House.
If you're opting for the latter, you need to complete form NM01. There is a £10 fee payable to Companies House to file the form.
If you're trading as a limited liability partnership, you need to file form LL NM01. A £10 fee applies.
Limited Company Advantages vs Disadvantages
Before you begin your registration process to set up a limited company, there are a few things you need to consider.
You need to choose the type of limited company you need (public limited company or private limited company), choose a company name and decide on how you’re going to set up your company. For the latter, you have the option of registering with Companies House or using a third-party service, like an accountant or company formation agent.
Once you’ve gotten these sorted out, you’ll be ready to begin the company formation process.
This involves completing documents like the Memorandum of Association, Articles of Association, Form 10 and Form 12, after which your application will be processed. Companies House will typically provide an update in the next working day, and mail out a hard copy of your articles of incorporation.
Now that you’ve registered your company, there are a few additional items to cross off your checklist.
You need to open a business bank account, ensure that you’ve received your company UTR number and complete your VAT registration (or if you were VAT-registered as a sole trader, you need to notify HMRC of your transition to a limited company structure).
You’ll also need to set up your payroll, update your company details on your website and business documents (such as your order forms and business letters), and get your accounts sorted out.
Registering a Limited Company Guide
Registering a Limited Company Guide
- What is a Limited Company
- 10 step process for setting up a Limited Company
Disadvantages of a limited company
Disadvantages of a limited company
The advantages of operating as a limited company are well known. It can be a great way to maximise your take-home pay, improve your credibility with customers and limit your personal liability. Like most things in life, it's a case of what's best for your situation. While the positives outweigh the negatives for most people, there are a few things you should know before you make the jump to a limited company.
In this article, we'll outline the disadvantages of operating as a private limited company. Bear in mind that there are many advantages to a limited company and in many cases, these advantages will outweigh the disadvantages, so don't think of this as a report of doom and gloom.
Key considerations when you register a Limited Company
Key considerations when you register a Limited Company
As a freelancer, contractor, or small business, it is typical to start with the simple structure of operating as a Sole Trader.
While taxes and other administrative work may be relatively easy when you are a Sole Trader, as your volume of business goes up, there are more and more reasons to take on the task of becoming a Limited Company.
For instance:
- A Limited Company protects your personal assets. If you are found liable in a lawsuit, only your business assets are at risk.
- A Limited Company is usually more tax efficient than being a Sole Trader.
- Once you have your name chosen as a Limited Company registered through Companies House, no one else can take your company name.
Luckily, running a Limited Company doesn't have to be exceedingly complex, though following a set plan will help to keep the complexity to a minimum.
3 Ways to Register Your Company for Free
3 Ways to Register Your Company for Free
Registering a company is a one off cost of £12 and done through Companies House. However, there are a few different ways that you can get this fee waved with other business services that you need.
We'll walk you through how to register your company for free and the perks that you'll get with each.
What type of business structure is best for you?
What type of business structure is best for you?
If you're looking to the future with the hopes of beginning a journey running your own startup, chances are you're feeling some mixture of excitement, trepidation, and uncertainty when it comes to the finer details of your plan.
Starting your own business is an immensely fulfilling process and an excellent means to flex your creative muscles, but there's a lot of humdrum of business behind the process of turning a vision into a dream.
One of the most important (and one of the earliest) decisions in this process will centre around your business's formation. You'll have to select which type of business structure best suits your goals for the future.
While the choice may sound easy, you'll be well-served by giving the decision ample consideration. The business structure you select will have measurable implications on the way you make money and do business. It'll impact:
- How much tax you pay
- Your degree of personal liability should the business fail
- How much administrative work is involved in the business (both before it comes to fruition and over the course of its life)
- Your ability to finance and fund your efforts
If you make the wrong selection when it comes time to choose a business structure, you could be faced with a myriad of complications in the future.
Paying professionals for guidance and advice once things go wrong is costly and, for many, an embarrassing affair-performing research well in advance will ensure you're making the best choice for your company and that you can avoid losing out on money or pride later on.
How to Register a Limited Company & free limited company registration
Before you begin your registration process to set up a limited company, there are a few things you need to consider.
You need to choose the type of limited company you need (public limited company or private limited company), choose a company name and decide on how you’re going to set up your company. For the latter, you have the option of registering with Companies House or using a third-party service, like an accountant or company formation agent.
Once you’ve gotten these sorted out, you’ll be ready to begin the company formation process.
This involves completing documents like the Memorandum of Association, Articles of Association, Form 10 and Form 12, after which your application will be processed. Companies House will typically provide an update in the next working day, and mail out a hard copy of your articles of incorporation.
Now that you’ve registered your company, there are a few additional items to cross off your checklist.
You need to open a business bank account, ensure that you’ve received your company UTR number and complete your VAT registration (or if you were VAT-registered as a sole trader, you need to notify HMRC of your transition to a limited company structure).
You’ll also need to set up your payroll, update your company details on your website and business documents (such as your order forms and business letters), and get your accounts sorted out.
Registering a Limited Company Guide
Registering a Limited Company Guide
- What is a Limited Company
- 10 step process for setting up a Limited Company
Disadvantages of a limited company
Disadvantages of a limited company
The advantages of operating as a limited company are well known. It can be a great way to maximise your take-home pay, improve your credibility with customers and limit your personal liability. Like most things in life, it's a case of what's best for your situation. While the positives outweigh the negatives for most people, there are a few things you should know before you make the jump to a limited company.
In this article, we'll outline the disadvantages of operating as a private limited company. Bear in mind that there are many advantages to a limited company and in many cases, these advantages will outweigh the disadvantages, so don't think of this as a report of doom and gloom.
Key considerations when you register a Limited Company
Key considerations when you register a Limited Company
As a freelancer, contractor, or small business, it is typical to start with the simple structure of operating as a Sole Trader.
While taxes and other administrative work may be relatively easy when you are a Sole Trader, as your volume of business goes up, there are more and more reasons to take on the task of becoming a Limited Company.
For instance:
- A Limited Company protects your personal assets. If you are found liable in a lawsuit, only your business assets are at risk.
- A Limited Company is usually more tax efficient than being a Sole Trader.
- Once you have your name chosen as a Limited Company registered through Companies House, no one else can take your company name.
Luckily, running a Limited Company doesn't have to be exceedingly complex, though following a set plan will help to keep the complexity to a minimum.
3 Ways to Register Your Company for Free
3 Ways to Register Your Company for Free
Registering a company is a one off cost of £12 and done through Companies House. However, there are a few different ways that you can get this fee waved with other business services that you need.
We'll walk you through how to register your company for free and the perks that you'll get with each.
What type of business structure is best for you?
What type of business structure is best for you?
If you're looking to the future with the hopes of beginning a journey running your own startup, chances are you're feeling some mixture of excitement, trepidation, and uncertainty when it comes to the finer details of your plan.
Starting your own business is an immensely fulfilling process and an excellent means to flex your creative muscles, but there's a lot of humdrum of business behind the process of turning a vision into a dream.
One of the most important (and one of the earliest) decisions in this process will centre around your business's formation. You'll have to select which type of business structure best suits your goals for the future.
While the choice may sound easy, you'll be well-served by giving the decision ample consideration. The business structure you select will have measurable implications on the way you make money and do business. It'll impact:
- How much tax you pay
- Your degree of personal liability should the business fail
- How much administrative work is involved in the business (both before it comes to fruition and over the course of its life)
- Your ability to finance and fund your efforts
If you make the wrong selection when it comes time to choose a business structure, you could be faced with a myriad of complications in the future.
Paying professionals for guidance and advice once things go wrong is costly and, for many, an embarrassing affair-performing research well in advance will ensure you're making the best choice for your company and that you can avoid losing out on money or pride later on.
Limited Company Filing Deadlines
Being a limited company director comes with several legal responsibilities. In addition to your statutory duties, you’re also responsible for meeting your filing deadlines.
These include:
- File your Self Assessment by 31st January following the end of the relevant tax year.
- If you’re VAT-registered, you need to file your VAT returns 1 month and 7 days after your VAT quarter end date.
- File your company accounts 9 months after your company year-end. If you’re in your first trading year, your first annual accounts are due 21 months after your date of incorporation
- File your Confirmation Statement up to 14 days after the due date. The due date is 12 months after the date your company was incorporated, or 12 months after the date you filed your previous Confirmation Statement.
- File your company tax return 12 months after the end of the relevant tax year.
- If you’ve just begun employing staff or using subcontractors for construction work, you need to register as an employer before an employee’s first payday.
- If you already have employees, there are a number of deadlines you need to meet for your payroll year end.
- Submit your final payroll report for the year before your employee’s final payday for the tax year ending 5th April.
- Provide your employees with the P60 by 31st May (following the end of the relevant tax year).
- File employee benefits and expenses using your payroll software, and submit your P11D and P11d(b) forms by 6th July.
- In addition to the payroll year-end deadlines, you’re also required to:
Send the FPS on or before your employees’ payday. The FPS must be submitted each time you pay your employee. This means that if your employee is paid weekly, you’ll need to make 52 submissions across the year.
What are the deadlines for payment of PAYE taxes?
What are the deadlines for payment of PAYE taxes?
If you're paying salaries to employees or directors, you need to register for PAYE and pay your PAYE bill to HMRC.
- Monthly payments: Your PAYE bill is due on the 22nd of the next tax month.
- Quarterly payments: Your PAYE bill is due on the 22nd after the end of the quarter.
There are various ways to make your payment.
- Same or next day payments: online or telephone banking, CHAPS
- Payments processed in 3 working days: card payments (online), Bacs, cash or cheque payments at your bank or building society, Direct Debit, by cheque through the post
- Payments processed in 5 working days: Direct Debit (if it's the first time you're setting up a Direct Debit payment)
-
Can I change my company's accounting date / year end date?
Can I change my company's accounting date / year end date?
You can change your company's year-end-otherwise known as the accounting reference date (ARD). Changes can be made to your current financial year or the year before.
Your company's financial year can be shortened as many times as you want, with the minimum duration you can shorten it by being one day. You can lengthen your company's financial year by up to 18 months once every five years. If [other conditions apply](https://www.gov.uk/change-your-companys-year-end#:~:text=You can change your company's,the one immediately before it.), such as if your company is in administration, you'll be able to lengthen your financial year more often.
How to set up a Limited Company: everything you need to know about starting a Limited Company
“What do I need to do after setting up a limited company?” is a question we’re often asked by users who’ve registered for our limited company accounting packages.
Here’s a brief overview of what you need to do:
- Fulfill your responsibilities as a limited company director
- Open a business bank account
- Keep your stakeholders updated: If you’re transitioning from being a sole trader to a limited company structure, you’ll need to notify stakeholders—like your banks, debtors, landlords and insurers—of the change. With stakeholders like your suppliers and customers, you may need to review your contract, and transfer it to your new company.
- Get your VAT sorted out: You may need to register for VAT. And if you’re already VAT-registered, you may request for a transfer to be made to your new company, or cancel your VAT and complete a re-registration.
- Set up your payroll
- Ensure that your company details are up-to-date: As a limited company, you need to meet specific requirements when it comes to displaying your company information. Your company name must be included on all company documents, letters and communication materials. In addition, your websites, business letters and order forms must show your company’s registered number, registered office address, where your company is incorporated and indicate that your company is a private limited company.
- Obtain business insurance: If you’re an employer, you’re legally required to obtain employer's liability insurance. Other types of business insurance you should consider getting include public liability insurance, professional indemnity insurance and business contents insurance.
- Get your books sorted: If you were already using an accounting package as a sole trader, you’ll need to create a new account and start anew. And even if you were managing your own accounts before, do note that the requirements of limited company accounting can be complicated—so you’ll benefit from using accounting software, or from the expertise and advice of a specialist accountant.
Accountant Checklist Guide
Accountant Checklist Guide
- Why you may need an accountant
- Key areas an accountant can help
- Questions to ask an accountant
- Accountant checklist
Small Business Accounting Guide
Small Business Accounting Guide
- When and why you may want to register a Limited Company
- Advantages and disadvantages of a Limited company
- Limited company alternatives
- When to register for VAT
- Advantages and disadvantages of VAT
- How to take money out of your company
- Dividend tax rates
- Limited company expenses & corporation tax
- Annual accounts and deadlines
- Confirmation statements and deadlines
- Self Assessment tax returns
Beginner's Guide to Bookkeeping for Small Business
Beginner's Guide to Bookkeeping for Small Business
Starting a new business?
Bookkeeping requirements are unlikely to be at the forefront of your mind. At this stage there are more pressing things for you to think about.
However, once your business is taking shape, you will need to start thinking about keeping up-to-date and accurate accounting details of your income and expenses. But what kind of records do you need to keep?
More than just a legal requirement, basic bookkeeping is an essential part of your ability to manage your business effectively.
Every year, your business accounts will need to be completed. If your business is operating as a limited company, you will need to submit your company accounts to Companies House. If you are self-employed, your business accounts will be used to calculate your Self Assessment tax liability.
Your bookkeeping records will form the basis of these statutory financial statements. They should include information relating to your sales, your expenses, salaries of you and any employees, along with other bank transactions.
It might sound complicated, but take it one step at a time and it's actually quite manageable.
If you're really struggling to stay on top of it all, there are plenty of small business accountants and professional bookkeepers who will be happy to help. So, even if you're terrified of numbers, rest assured that there's a solution out there for you.
When Should I Hire a Small Business Accountant?
When Should I Hire a Small Business Accountant?
If you're a self-employed person or small business owner, you might have already asked yourself the question, "Do I really need an accountant?"
When people ask that, they usually mean, "Can I justify the cost of an accountant?"
It seems simple: Hiring an accountant might seem like something you could do without, and if you handle the accounting yourself, you save money.
But that isn't the best way to think about it. The reality is that there are hidden costs associated with DIY accounting, and you don't want to come up short. So instead, ask yourself, "Will hiring an accountant add value to my business?"
The answer is yes.
Below, we'll cover the key cases when you should hire an accountant:
How much should accounting cost?
How much should accounting cost?
As a new business owner, you'll often find yourself juggling numerous roles and tasks-from growing your business, to managing your operations, financesand taxes.
In addition, you're now required to meet your legal obligations as a limited company director-such as filing the necessary paperwork and accounts on time-or you'll risk being penalised.
Staying on top of all of these tasks can feel overwhelming, and here's where a limited company accountant comes into the picture.
Below, we'll look into:
- What you can expect to pay for limited accounting packages
- Services that are included in the cost
- FAQs relating to choosing a limited company accounting provider
Schedule a free Limited Company Accountant consultation
Speak to one of our accountants on a free 30 minute accounting consultation.
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