Advantages of Creating a Limited Company:
There are various benefits of moving from small business to a limited company.
Your personal finances and business will be distinct
The main benefit of moving over to a limited company is that you will have limited protection liability. This signifies that to pay the debts, your assets shall not be captured, without giving your personal assurance to the creditor of the company.
This also means that the business which you are running is the owner of the equipment, reimburse the bills and acquire its personal debts.
Many customers want to work with limited companies
If you own a limited company, then customers have full faith in doing business with you.
You have more alternatives with your gains post-tax
You can select to pay the personal tax and pay the money in the form of dividend. Or spend and invest your precious money. You can also invest the money in your company and via the bank account of your business, earns the interest.
You are the legal owner of the name of your business
If you do not register the name of your company, then you don’t have the right to use the name of your business as a sole trader. If some other person established a limited company with the similar name as your sole trader firm, then you have to face legal consequences by keeping that name.
It is very simple to receive the investments
If you are the owner of a limited company, then you can easily sell the shares owned by you to the person investing some amount in your company. If you are a sole trader then you search for investment, if you convert your business into a partnership firm.
You may pay reduced tax
If you are the owner of a limited company, then you don’t need to pay the income tax. After getting the profits, you require to only pay 20% tax of corporation. (profits do not more than £300,000 during the year).
You may receive more solace from tax
By a limited company, you will enable to make high tax solace claims against accommodation, pension contributions, salaries and various areas.
You may make more money
If you are getting paid via a merger of dividends and salary, then you can decrease your National Insurance Contributions and Income Tax. This is performed by protecting your salary as directors under the reduced profit limits of the NIC (For the tax year 2017-18, £8,164).
Since in a tax year, you don’t require to pay the tax on the first £5,000 of income dividend. You can get the rest of your salary as paid dividends from profits of tax post-corporation.
Disadvantages of Creating a Limited Company:
There are few disadvantages of moving from sole-trader to a limited company.
If you are the owner of a sole trader firm, then you only need to file your self-assessment return
of tax every year. But if you are the owner of a limited company, then you need to file:
- Personal return of tax, if you are the director of the company
- Company Tax Returns
- Yearly return
- Accounts set
This means you’ll have to spend more time preparing your paperwork. If you’re running the business by yourself, this could prove too demanding on your time.
You may pay extra tax
When you are the limited company director, then you are not able to draw money anytime from the bank account of your business. You need to pay salary to yourself, you can receive dividends on the total number of shares owned by you and need to pay yourself the expenses of the business. If you want to withdraw some extra money, then you need to pay extra tax on it.
Your accounting and tax might become extra difficult
With in nine months of the year-end of the company, you need to file your accounts with the house of the companies. The complete set of statutory accounts which you need to file includes:
- Accounts notes
- Report of the Auditor
- Report of the director
- Balance sheet
The extra paperwork will result into higher admin costs and fees of the accountant.
You can also read : Do You Need Business Bank Account?