6 Advantages of Running Your Business as a Limited Company Instead of Being Self-Employed

Limited Company

You might be forgiven for thinking that running a Limited company is not as attractive as it once was, with Public Sector contractors already hit with IR35 reform and the Chancellor announcing  changes will come into the Private Sector from April 2020.

But despite this, running a Limited Company still has significant advantages against being self employed in the right circumstances.  Here, we highlight 6 of the biggest benefits a limited company can give you over working as self-employed;

Your Limited Company is a Distinct Entity

A limited company is a completely separate entity from you, the owner. Everything from the company bank account, to ownership of assets and involvement in tenders and contracts is purely company business and separate from the interests of the company’s shareholders.

A sole trader and his/her business is treated as a single entity for tax and administrative purposes.

Limited Liability

Running your business as a limited company means you have the reassurance of ‘limited liability’.

Assuming no fraud has taken place, your ‘limited liability’ means you will not be personally liable for any financial losses made by your business. A limited company can therefore give you added protection should things go wrong.

Those running a business as self-employed do not enjoy such protection from financial claims if things go wrong with their business.

Lower Tax Bills

The main advantage of running your business as a limited company is that you are likely to pay less personal tax than as a sole trader.

Limited company profits are subject to UK Corporation Tax, which for the current tax year is set at 19%. The Government has stated its intention to cut UK Corporation Tax to 17% from the tax year starting in April 2020.

If you are the director and shareholder of a limited company, you may choose to take a small salary and draw most of your income in the form of dividends.

By doing this you can minimise the amount of National Insurance Contributions (NICs) you have to pay because limited company dividends are taxed separately, and are not subject to NICs.

As a sole trader, your entire income is subject to NIC rules. Running your business as a limited company could therefore help you to take home more of your earnings.

We have more detail on how to decide what to pay yourself in our guide https://www.orangegenie.com/accountancy/contractor-salary-how-choose-tax-efficient-salary

A More Professional Image

Having a limited company can provide you with more kudos and a more professional image, it may provide you with an advantage when looking for new contracts. Some large end clients may prefer to work only with Limited companies.

Protecting your name and creating a brand

Once you register your company with Companies House, your company name is protected by law and no-one else can use the same name as you. As a sole trader, it’s possible someone else could trade under the same name as you, and you couldn’t do anything about it. This could damage your business or reputation, and in some cases, result in you having to go through the costly and time-consuming effort of changing the name of your business.


Operating on a self-employed basis will mean you are making your own pension contributions out of taxed income. A limited company can fund its employees’ pensions as a legitimate business expense. This can offer a significant tax advantage.

Undoubtedly setting up a sole trader is the simplest way to start a business but taking the step to form a Limited company is not so daunting.  Why not download our Guide to Opening and Running a Limited Company to see how easy it is?

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