Thinking of registering as a limited company? Here are a few things to consider

Limited company or sole trader

Thinking of registering as a limited company? Here are a few things to consider

When starting a business, becoming a sole trader is the simplest path. You only need to inform HMRC that you are self-employed, report your taxes through self-assessment, and you’re done! You keep all your profits and can make decisions for yourself. What could be better than that? Nothing, as long as you don’t mind being personally responsible for all company debts. If something goes wrong, you are liable, and your personal assets, like your home and car, are at risk. When this happens, being a sole trader becomes less appealing.

If you register as a limited company, you legally separate your assets from those of your business. If the company goes bankrupt, you won’t. This seems like the logical next step for sole traders looking to expand because the bigger your company gets, the more you have to lose.

How to register as a limited company

Registering as a limited company is straightforward. All you need is:

  • A unique company name – we suggest you check domain names first and register your domain before registering your company at Companies House.
  • A physical address for your business
  • At least one director and one shareholder
  • The personal details of any shareholders with more than 25% shares – the people with significant control

Why register as a limited company?

There are plenty of reasons to register as a limited company, on top of the diminished responsibility for the business debt. For one, you’re likely to pay less tax than a sole trader. You’re also subject to UK corporation tax, which is currently set at 19% for this tax year. The current government is set to cut this to 17% during 2020. You can also minimise the national insurance contributions you pay by taking a small salary and making up the rest of your income from dividends, which are taxed separately.

The other benefits are that, in many sectors, having a limited company appears to be more professional, helping to increase your profitability. There are minimal start-up costs and being limited also makes it easier to obtain funding. This is because there seems to be less risk with this route compared to sole traders, whose assets and trade are not distinct entities. Furthermore, your unique company name stays that way because no one can register theirs under the same name. On top of that, you can quickly sell shares to stakeholders. There will be other areas you will want to consider, such as registering for VAT and procuring the right insurance policies.

Other factors

Many people prefer to be sole traders under the impression that start-up costs are lower than with limited companies. In reality, you can start one with as little as £15. However, an accountant may charge more than they would for a sole trader to prepare annual accounts. Keep your wits about you when outsourcing your accounting so you don’t get ripped off. To avoid this, ask your accountant their breakdown of service and the associated costs.

We always recommend taking professional advice before setting up your business.

If you need more information about the best options for you as a sole trader or limited company owner, don’t be afraid to get in touch with Big Hand today on 0161 327 2911. We’ll not only take care of all your accounting needs, but we can also help steer your business ideas in the right direction, helping you to build a better future.

About the Author:

Since 2013, Sophie has been an integral part of the Big Hand team. As a social butterfly, Sophie is mostly responsible for introducing new clients to the company. If you’re an avid networking, you’re most likely to meet Sophie at local events. Alongside attracting new business, she also assists with account management, and she manages payroll on behalf of clients. For fun, Sophie loves to keep fit running or playing korfball with her team. She is also in the middle of learning a new language and so her most recent challenge is attempting to read Harry Potter in Dutch.