Becoming a freelancer – setting up a limited company

When making the decision to become a freelancer, you have two options. You can either set up as a sole trader or start a limited company.

Both options come with their own unique opportunities and challenges that need to be carefully considered before a decision is made.

For many, the advantages of a limited company work better for them and their freelance career.

Perks of starting a limited company

  • Limited liability: The most significant advantage of a limited company is the protection of personal assets. As a separate legal entity, the company’s financial liabilities are separate from your personal finances. This protection provides peace of mind, especially in industries where there is a higher risk of legal disputes or financial liabilities.
  • Tax advantages: Operating through a limited company can be more tax-efficient, particularly for higher earners. The Corporation Tax rate is generally lower than the higher personal Income Tax rates. Additionally, drawing income as dividends can be more tax-efficient than a salary, providing opportunities for strategic tax planning.
  • Corporate image: A limited company often presents a more professional image, which can be beneficial in attracting clients, especially larger corporate clients. This perception can lead to more business opportunities and potentially higher rates of pay.

Drawbacks of starting a limited company

  • Complex setup: Setting up a limited company involves a lot of steps. You need to register with Companies House, which includes choosing a company name, preparing documents like the memorandum and articles of association, and understanding the legal responsibilities of being a company director.
  • Increased administration: Running a limited company comes with more administrative responsibilities. You are required to file annual accounts, a confirmation statement, and deal with corporate tax affairs. This increased paperwork can be time-consuming and may require the assistance of an accountant.
  • Public disclosure: A limited company must disclose certain information to the public. Details such as director names, registered office addresses, and annual accounts are accessible through Companies House. This lack of privacy can be a drawback for those who prefer to keep their business details confidential.

Other considerations

As well as the above-mentioned pros and cons, there are other things to consider before choosing to start a limited company.

The way that you pay tax will be in two different ways – Corporation Tax will be paid on profits, and any salary or dividends that you take are subject to personal tax. This is often beneficial if you have a larger income, as Corporation Tax rates are generally lower than the higher rates of Income Tax.

You may also need to consider VAT, as VAT registration is mandatory if your turnover exceeds £85,000.

However, registering voluntarily before that threshold can have advantages, such as reclaiming VAT on business expenses.

You must also be stringent about keeping records of your company’s finances to comply with your reporting requirements.

Whilst you can keep your own records, many opt for an outsourced accounting professional to organise it for them.

If you would like help setting up finances for your limited company, get in touch with one of our experts today.

Blog right caret

Adapting your business plan for the summer

Blog

Tax implications to consider for business owners when paying themselves 

Blog

Research and Development tax relief changes 

Blog

Business right caret

Small business confidence dips ahead of new customs controls coming into force

Four in 10 exporters have reported a fall in international sales since the end of the Brexit transition period, a major study has revealed. According to the tracker, four in 10 – around 41 per cent of traders – have reported a “drop off” in international sales in the three months to September 2021.

Business

Large number of businesses looking to recruit more staff

It is perhaps a sign of confidence returning to the UK economy that a significant number of British businesses believe they will be recruiting staff over the coming year.

Business

Spring Statement 2022 summary

Mr Sunak found himself addressing MPs against a background of crisis, with the residual impact of COVID, the invasion of Ukraine and the cost-of-living crisis all affecting the economy in different ways.

Business

Cloud right caret

Cloud-powered accounting: Advancing beyond traditional cloud accounting systems

Cloud

Cloud accounting isn’t right for my business! We disagree.

Cloud

Making MTD for ITSA easier for landlords

Cloud

Compliance right caret

HMRC asks sole traders to correctly report SEISS grants or “repay in full”

Sole traders who have not correctly reported their Self Employment Income Support Scheme (SEISS) grants may be forced to repay them in full, it has been warned.

Compliance

Making Tax Digital – what you need to know ahead of 2022-23

From April 2022 all VAT-registered businesses need to comply with MTD for VAT. MTD applies to taxpayers who file Income Tax Self Assessments for business or property income of more than £10,000

Compliance

Real-time online sanctions tracker to assist importers and exporters

Any business involved in international trade, whether importing, exporting or part of the supply chain supply to those firms, is faced with a rapidly changing regulatory environment.

Compliance

Economy right caret

Small businesses call for Government support to tackle climate change

According to new research, many are addressing energy usage, increasing recycling and investing in microgeneration, but only a third of those have a formal plan to tackle climate change within their business.

Economy

Hospitality bosses develop new strategies to cope with staff shortages

Hospitality business owners have responded positively to the staff shortages caused by the pandemic, by increasing wages and implementing improved staff retention strategies.

Economy

Everything you need to know about the new WTO Services Domestic Regulation

New World Trade Organisation (WTO) rules are set to cut the cost of global trade by billions of pounds every year, it has been announced.

Economy

Funding right caret

Funding for growing businesses – Obtaining and managing private investment

Funding

Investment right caret

Funding for growing businesses – Obtaining and managing private investment

Investment

MTD right caret

Making MTD for ITSA easier for landlords

MTD

SME right caret

Adapting your business plan for the summer

SME

Research and Development tax relief changes 

SME

Late payments – why they are so damaging to small businesses and how to deal with them

SME

Tax right caret

Understanding tax obligations for charities

Tax

Navigating estate planning and Inheritance Tax: what you need to know

Tax

Tax considerations for small business owners: Sole traders vs limited companies 

Tax

Tax Planning right caret

Almost 800,000 tax scams reported to HMRC in past 12 months, figures reveal

Nearly 800,000 tax-related scams were reported to HM Revenue & Customs (HMRC) in the past 12 months, a major study has revealed. According to the report, HMRC responded to 797,010 referrals of suspicious contact from the public in the last year. Around 358,000 of these involved scams where taxpayers were offered bogus tax rebates.

Tax Planning

Be aware of tax liabilities if you are using cryptocurrencies

For those who have dabbled in the market, its important for them to understand that there may be tax liabilities with Captial Gains Tax and Income Tax, with any transactions whether with currency or other crypto assets.

Tax Planning

Did you use a Bounce Back Loan to cover personal expenses during the pandemic? Act now to avoid tax consequences

If you received a Bounce Back Loan (BBL) during the coronavirus pandemic and took the cash as drawings, there may be additional tax consequences.

Tax Planning

VAT right caret

Paper VAT registration to be abolished in latest digital move

In the latest move in their Making Tax Digital (MTD) campaign, HM Revenue & Customs (HMRC) is removing paper VAT registration from 13 November 2023.

VAT

I’m not VAT registered; can I claim VAT back? 

VAT