for WHAT DETAILS DO I NEED TO FORM A LIMITED COMPANY
61 Friar Gate Derby DE1 1DJ
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Should I Incorporate? - We‘re often asked about the benefits of incorporating a business into a limited company.
Below we look at the differences between operating as a sole trader and a limited company.
As a sole trader you are the business, the owner and the manager. In comparison, if you decide to incorporate your business, it becomes a separate legal entity, you become a shareholder and you serve the company as a director.
In the event that the business has a legal dispute or if the business fails and owes money, as a sole trader you would be sued personally. As a limited company is a separate legal entity its finances are separate to yours, so your personal assets are safe.
Tax on Business Profits
As a sole trader you’ll pay Income Tax and National Insurance on your business profits in the year that they’re earned. A limited company pays Corporation Tax on the business profits in the year earned.
Company tax rates are currently lower than Income Tax rates.
Business profits for a sole trader are subject to Income Tax and you’ll have no further tax to pay when you withdraw money from the business. Monies withdrawn from a limited company are subject to Income Tax and National Insurance at the time payment is made.
As a limited company director, each year you are obliged to prepare and submit financial accounts in accordance with the Companies Acts, to Companies House. A company tax return, along with your financial accounts must also be filed with HMRC.
There’s no requirement to prepare formal business accounts as a sole trader.
Information about your limited company, including the financial accounts will be in the public domain. Each document filed at Companies House is readily available to be downloaded by any third party.
There are no requirements to publish business information as a sole trader.
You should expect to pay more in accountancy fees when you incorporate your business. However, this cost is usually outweighed by tax savings.
You’ll have certain legal responsibilities as a limited company director. Failure to meet these responsibilities can lead to disqualification, fines, or in the worst case, a criminal prosecution.
Key benefits of incorporating
As well as the differences already noted, here are some of the benefits of incorporating your business.
There are many factors to consider before incorporating your business, so we’d always advise you to speak to an accountant to find out what’s best for you.
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Being a director of a company can provide you with kudos as it can portray the success of your business. The reputation of your business will be enhanced, hopefully attracting more customers.
Whilst obtaining funding is difficult for most businesses, having a company separate from yourself may make it easier.
As an employee, the company could provide you with a pension. This would be a tax-deductible expense, giving you a tax advantage over a sole trader.
As a shareholder, should you wish to retire or sell your business it’s much easier to transfer the business ownership than with a non-registered business.
Registered office: 61 Friar Gate, Derby, Derbyshire, DE1 1DJ
Adrian Mooy & Co is the trading name of Adrian Mooy & Co Ltd. Registered in England No. 05770414
Registered to carry out audit work by the Association of Chartered Certified Accountants - auditregister.org.uk 8011438