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If you’re a contractor or sole trader, you may have considered what the next step of your career may be.
Setting up a limited company is thought to be the most tax efficient way of working and if you’re in it for the long term, it is definitely something to consider in order to benefit from your business.
There are over 4 million limited companies incorporated in the UK and they are quickly becoming the choice for many contractors and sole traders to give structure to working conditions.
WHAT ARE THE BENEFITS OF SETTING UP A LIMITED COMPANY?
Although there are many responsibilities that are attached to setting up a Limited company, there are many advantages too.
If you run as a Limited company, you are protected if things go wrong and you will not be personally liable for any financial losses made by the company. As a director you can potentially save on National Insurance costs by electing to take a majority of your income in the form of dividend payments. This enables you to manage your own tax liability. Dividends are not subject to national insurance contributions. It is easier to transfer a company to another name when it is set up as a Limited company. It is possible to transfer your ownership of shares, or other shareholders can sell their shares to another party at any time. You can reap the benefits of owning a Limited company by only worrying about yourself. The only person you need to pay is yourself which means that you could effectively take home between 81 – 86% of your earnings. Running as a Limited company also gives you more options to control how you manager your finances.
Finally, as you have set up a Limited company, your business is separate from your personal life and therefore needs its own bank account. This is straightforward process but banks may want to see documentation to confirm the status of your company. It is worth looking at a few bank options as some offer free introductory fees for a period, which will help with getting you started.
Running your own business as a Limited company can give a more professional impression which can be beneficial when looking for new clients or to expand your business. If you’re working with larger companies, they may look on you more favourably over smaller sole-traders.
Making the decision to become a Limited company comes down to the type of work that you are performing and the clients that you are working with. If you are looking for your business to be long term, to grow and expand and to work with a variety of clients, setting up as a Limited company is the best route to go down. However, always seek advice.
If you’re thinking about setting up as a Limited company and would like financial advice or have a Limited company and are looking for an accountant to take the pressures from you, feel free to get in touch! We also provide a quick and easy set-up of your limited company as part of our service.