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Is it Better to Run Your Business as a Limited Company Instead of Being Self-Employed?

Limited Company

If you’re working as a self-employed contractor, you may have come across the idea of trading through your own Limited company instead. This is often the best option for long-term career contractors, particularly if they’re successful and want to grow their business.

Everything you need to know about contracting through a Limited Company: Download our FREE guide>>

Running a Limited Company has significant advantages against being self-employed in the right circumstances.  In this article we’ll look at some of the more important differences, so you can decide if “going Limited” is for you.

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 your affairs.

A sole trader and their business are treated as a single entity for tax and administrative purposes.

Limited Liability

Assuming no fraud has taken place, your trading through a Limited company means you will not be personally liable for any financial losses made by your business. This can give you added protection should things go wrong.

Those running a business as self-employed do not enjoy such protection from financial liability if things go wrong with their business and will be personally liable for any debts.

Tax Planning Opportunities

Assuming you’re outside IR35, trading through a Limited company is probably the most tax efficient way to work.

If you are the director and shareholder of a Limited company, you can work with a specialist contractor accountant to minimise your tax bill and maximise your rewards.

For example, you might pay yourself a small salary and take the rest of your income as dividends, which could reduce the amount of tax and National Insurance you pay.

As a sole trader, your entire income is subject to personal income tax and National Insurance. 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.

A More Professional Image

Having a Limited company can provide you with more kudos and a more professional image, which could be an advantage when looking for new contracts. Some end clients prefer to do business 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. This allows you to build your brand and grow your business in the knowledge that your competitors are not allowed to use the same name.

As a sole trader, it’s possible someone else could trade under the exact same name as you, and you couldn’t do anything about it. This could damage your business or reputation, and it could be costly to change the name of your business, particularly if you’ve built a strong and recognisable brand.

Pensions

Operating on a self-employed basis will mean you are making 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 could be the best way to go.

If you have questions or if we can help in any way, please call our expert team on 01296 468483 or email info@orangegenie.com.

 

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