We’re back with the next episode of ‘Ask the Accountants’!
A question we get asked a lot is whether a business should become a limited company – find out what MD Jenny has to say below.
Not able to watch the video? Scroll down to find a full transcript.
“Hi, it’s Jenny, back with another addition of Ask the Accountants, diving into another hot topic at the moment, limited companies!
As a director of a limited company myself, I’m often asked by sole traders whether they should make the switch. In fact, a graphic designer called Holly has just recently got in touch to ask if she should become a limited company after being self-employed for two years?
Well ultimately Holly, and anyone else out there thinking about this, there are pros and cons to being both a sole trader and a limited company. Let’s have a look at what these are in a bit more detail to help you make a more informed decision.
So first up, what’s the difference anyway? The best way to think of this is that a sole trader is their business, whereas a limited company is a separate entity.
If we think of this in terms of liabilities and debts, if you’re self-employed and the business gets in trouble, anything your business owes will have to be paid from your personal finances. If you’re a limited company, your personal assets are not at risk.
So a limited company is better right? Well that’s not always the case. As a sole trader you’ll benefit from quick, easy and free business creation, less paperwork and red tape and more privacy as your business books and address aren’t available to the public.
However, aside from the personal liability, if you’re self-employed you may find you have less access to finance and funding, as some lenders prefer the more transparent activity of a limited company, plus you’ll have limited options when it comes to financial and tax planning.
And although this might not be a factor for your own business, some sole traders find that their status affects their reputation and ability to get new contracts and projects. For some people, and other businesses, the idea of working with a limited company gives them more confidence.
Ok so you definitely want to be a limited company then? Yes you’ll be more tax efficient, you’ll have increased credibility and access to finance, but as with all things, there are some elements you may consider to be a disadvantage.
There will be more expenses as a limited company, for example you’ll be required to pay Corporation Tax and it’s strongly recommended that you employ an accountant to prepare your annual accounts (I promise I’m not just saying that!).
However if you’re a growing business, wish to take on employees, have big plans for the future, a limited company could be the perfect route.
As with most business decisions, it all comes down to you and your personal circumstances. Why not speak to us directly to make sure you’ve got all the information you need to make this important decision?
Until next time, thank you for joining us on Ask the Accountants!”