Lets take a look at the benefits of setting and being paid through your Ltd Company
What is a Limited Company?
A limited company exists as a separate legal entity from its owners. It holds a special status in the eyes of the law, with assets, liabilities, and profits belonging to the company rather than its owners.
Limited companies are incorporated and registered with Companies House and issues shares to its shareholders. It can also be known as ‘a private company limited by shares’.
So what are the advantages?
Limited Liability ✅
This is one of the key advantages of choosing a limited company. As mentioned earlier, limited companies are separate legal entities, which means that you are not personally responsible for any potential debts in the event of any issues. Your liability is limited to the value of the shares that you, as a company owner, have purchased during the setup. On the other hand, if you remain a sole trader, both you and your business are treated as a single entity for tax and administrative purposes.
Freedom and Control ✅
Setting up a limited company gives you more control over your career and the freedom to make business decisions independently. As the boss, you can enjoy a better work-life balance and take advantage of opportunities like time off, holidays, and breaks throughout the day.
Tax Efficiency ✅
Limited companies are tax efficient, making them a popular choice for business owners looking to minimise their tax obligations. Unlike sole traders, limited company directors can structure their income to take advantage of lower tax rates. By paying themselves a small salary and receiving the majority of their income as dividends, they can significantly reduce their National Insurance contributions. Additionally, while companies are subject to a 19% corporation tax on profits, sole traders face income tax rates ranging from 20% to 45% on their profits.
Improved reputation/credibility ✅
Many clients, especially large corporations and those in the financial sector, prefer to engage with limited companies rather than those working as sole traders. Having a limited company can open up new business opportunities that may not have otherwise been available.
Company Expenses ✅
Limited companies have the added benefit of being able to claim specific expenses, such as office equipment, travel, and utilities. These allowable expenses can help reduce the taxable profit, resulting in a lower amount of tax to pay. It is crucial to maintain accurate records of your receipts and expenses, so that you can provide explanations if needed in the future.
Pension Contributions ✅
In addition, limited companies have the advantage of being able to make tax-deductible pension contributions. Instead of using your taxed income, the company contributes to the pension fund from the gross company income. These contributions are typically eligible for tax deductions, which can provide potential relief on corporation taxes based on their value.
Still have questions?
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