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.
Tax return and payment deadlines you need to know
Tax return and payment deadlines you need to know
Tax season can be stressful for small business owners.
You don't have the convenience of having an employer filing for you. While there are all kinds of tips and strategies for managing your taxes, the first order of business is to get key deadlines noted on your schedule, and determine how and when to make your payment.
Here's what you need to know:
What deadlines do I need to know as a contractor?
What deadlines do I need to know as a contractor?
As a contractor running your own limited company, you need to be aware of the following deadlines:
- File end of year accounts to Companies House: 9 months after your company year ends. If it is your first year, the due date will be 21 months from the date your company was incorporated.
- File your confirmation statement: This is due on the anniversary of incorporation each year
- File your corporation tax return: This is due 12 months from your company year end.
- Pay your corporation tax bill: Payment is due 9 months and 1 day after the end of the company year
- PAYE RTI (Real Time Information) Returns: A submission of your company payroll has to be submitted in real time each month to HMRC. This is due on or before the intended salary payment. Any tax due from this can be payable on a quarterly or monthly basis as follows:
- the 22nd of the next tax month if you pay monthly
- the 22nd after the end of the quarter if you pay quarterly
- VAT returns: Usually submitted on a quarterly basis, the company VAT is due to be filed and paid within 1 month and 7 days from the quarter end.
- Self Assessment tax returns: Your Self Assessment Tax Return is always due to be filed by the following 31st January after the end of the tax year. This date is also the same deadline for payment of any tax due but you may also have a payment on account due by 31st July after this.
- P11D: The submission of the company P11D will need to made by 6th July with any payment of National Insurance arising due by 19th July (22nd if paid electronically)
What is your First Accounting Year End Date?
What is your First Accounting Year End Date?
The first accounting year end date for a new company is the last day of the month in which the first anniversary falls on. For example, if your company was incorporated on 15 January 2021, the first accounting year end date will be 31 January 2022.
What are the late filing and payment penalties?
What are the late filing and payment penalties?
PAYE
RTI late filing will incur a monthly penalty of £100, depending on the number of employees you have.
Self Assessment
A late filing penalty of £100 is imposed if your tax return is up to three months late. The penalty increases if you're later than three months, or if you pay your tax bill late. Additionally, interest will be charged on late payments.
VAT
You may be required to pay a surcharge if you submit a late return. Surcharges for late payments or VAT return filings are indicated on the HMRC website.
Corporation Tax
HMRC's penalties are as follows:
- 1 day late: £100
- 3 months late: An additional £100
- 6 months late: Your total corporation tax bill will be estimated, after which a penalty of 10% of unpaid tax will be imposed.
- 12 months late: An additional penalty of 10% of unpaid tax will be imposed.
Company accounts
The following penalties for private limited companies will be imposed if you fail to file your accounts with Companies House on time:
- Up to 1 month late: £150
- 1 - 3 months late: £375
- 3 - 6 months late: £750
- More than 6 months late: £1,500
What are Company Deadlines?
What are Company Deadlines?
As a limited company director, there are several important deadlines you need to be aware of. These are:
- File your Self Assessment tax return: 31st January 2022 for the 2020/2021 tax year
- Pay you Self Assessment tax: 31st January
- Registering for VAT: Register for VAT within 30 days of meeting the conditions for [compulsory registration](https://www.gov.uk/vat-registration/when-to-register#:~:text=Compulsory registration,over the last 12 months)
- Filing and paying VAT returns: 1 month and 7 days after your VAT quarter end date
- Company accounts: First year accounts are due 21 months after incorporation. Subsequent accounts are due 9 months after the year end
- Corporation tax registration: You need to register within 3 months of trading commencing.
- File your corporation tax return: 12 months following the end of your accounting period
- Corporation tax payment: 9 months and 1 day following the end of your accounting period
- File your Confirmation Statement: You need to file a confirmation statement every 12 months, within 14 days after your confirmation date.
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.
Contractor Accounting Services
Contractor Accounting Services
We pride ourselves on providing an unparalleled level of support that will make you feel valued, eliminate your admin and ensure you're being as tax efficient as possible.
VAT registration & filing
We'll registered your company for VAT, and ensure VAT is always filed well ahead of the deadline. We will ask you to confirm that you're happy for us to automatically file your VAT without having to approve it which will ensure that we can get this filed as soon as possible.
We'll also help you get setup with a Direct Debit for HMRC so that you can make your VATpayments automatically without having to manually do this every quarter. This saves you time and the stress of ensuring you've paid on time, and importantly will make sure you don't have to pay a penalty for a missed deadline.
Annual accounts
We aim to complete your annual accounts well ahead of schedule to ensure you have complete financial records.
Corporation tax
You should never have to guess how much corporation tax is due. We'll make sure you know how much is due and when it's due.
Confirmation statement
We'll make sure to keep your Companies House account up to date and ensure your confirmation statement is filed on time.
Self assessment
We include a Self Assessment with our operate and grow packages and this is also available as an additional £99+VAT one-off charge.
Tax efficiency
From your salary, dividends, pension, investments and company expenses, we'll help you optimise your tax.
Creating your business budget
Creating your business budget
Running a business involves catering for many aspects of the business that can bog you down.
You can even forget crucial roles, such as monitoring your small business finances. Although budgeting may not be the best and most exciting part of running an enterprise, it is fundamental for success.
When starting a new business, a budget is a vital part of your business plan. Once the business is open and operational, then budgeting becomes an essential exercise that takes place annually or quarterly.
A budget comprises of fixed and variable costs accompanied by the allocation of monies to reflect business objectives.
Bookkeeping vs Accounting Differences
Bookkeeping vs Accounting Differences
As a small business owner, having a good grasp of your business financials is key-even if you've hired an accountant.
While you can delegate your accounting tasks, understanding the basics will place you in a better position when it comes to discussing your business finances with your team members, financial professionals or potential investors.
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Previously, we've explained about the top accounting terms and concepts you need to know. In today's post, we'll explain the differences between bookkeeping and accounting. While these two terms are often used interchangeably, they refer to two vastly distinct functions and roles.
5 Common Small Business Accounting Mistakes & How to Fix Them
5 Common Small Business Accounting Mistakes & How to Fix Them
A broad swath of small business owners are tackling the myriad tasks required to pay bills, invoice customers, cut checks to employees and contend with past-due accounts, among other accounting tasks.
While that might work for very small businesses, it often opens the door for firms to make accounting mistakes that undermine their growth and siphon precious time and mental focus from other important areas of their business.
Here are five accounting mistakes that can derail growth for small businesses and how to avoid them.
How to find an accountant
How to find an accountant
If you have a company, or are starting one, then you will need an accountant.
Though you could do all your accounts yourself, in practice few business owners have the time.
An accountant also checks that you are doing everything correctly, and is a useful reference for both HMRC and financial institutions should you ever need to apply for a loan.
The trouble is that finding the accountant who is right for you is never easy.
You do not want to pay more than you have to, but are low-cost, self-service, internet-based accountancy packages really the best fit for your business needs?
In this article we shall break down that option and its alternatives for you, as we answer the key questions that are occupying your mind right now:
- Do I need an accountant?
- What should I look for in an accountant?
- How do I find the best accountant for me?
The purpose of this article is to give you the context and background you need to ask the right questions-especially when you may not yet know what those questions are.
Schedule a free Limited Company Accountant consultation
Speak to one of our accountants on a free 30 minute accounting consultation.
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