Starting up as a limited company
03/06/2008 send to a friend
One of the fundamental questions when starting a new business is; 'Should I run my business as a sole trader, partnership or limited company?'Our in-house accountant, Alan Young, says in the majority of cases, it will be preferable to run your business as a limited company. He explains why.
Tax savings
Over the last few years, tax laws have changed almost yearly. For some of that period, the first £10,000 of a limited company’s profits were tax free. Although this provision is no longer in force, the Small Companies Corporation Tax Rate presently stands at 21%, from 1 April 2008, for profits up to £300,000.
Although the Chancellor has now back peddled somewhat on the 10% tax band, a self employed person will pay a basic rate of Income Tax of 20% (rising to 40% from £36,000 of income) plus 8% Class 4 National Insurance. This represents a minimum saving of 7% on every penny earned for a limited company.
Limited Liability
If your business fails, your house and other assets are not at risk (unless you have guaranteed any debts personally).
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The perception held by most people is that limited companies are larger entities, and this automatically gives increased credibility.
As long as you actually pay tax (in other words, you earn more than the tax free threshold, currently £5,430 per annum) then the tax benefits of being a limited company will normally be significant, and one of the biggest misconceptions amongst new business owners is; “I’m too small to be a limited company.”
To all of you I would say; “You’re never too small to save tax!”
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Comments
Author: Hazel Edmunds
Date: 03/06/2008
Comment: I "went limited" from the first as it was the only way I could see of establishing credibility in my market place. I've never regretted the move and the company is now looking to enter its fourteenth year!
Some people are aware that the company consists of me and one part-time member of staff plus a supportive husband but most are not sure and as long as I continue to deliver the goods then that's fine!
Website: www.adsetsbusinessinfo.blogspot.com
Author: Rachael Ellis
Date: 03/06/2008
Comment: I also started off as a limited entity - and i can recommend a website to help you sort out all of the cumbersome paperwork www.clickdocs.co.uk it costs about £50 for all the documents you need to send off to companies house - and they email them across to you within the hour of purchase, they have filled in most of the details and you just add your name, director info etc and send it off.
it makes the process really easy - as i was led to believe that being "limited" was a complicated procedure, but i found it straightforward.
Website: www.ocurem.com
Author: tina
Date: 22/07/2008
Comment: I went limited after being a sole trader for a year. I did it through an accountant and its a nightmare....the paperwork has been overwhelming.
Website:
Author: Phil Richards
Date: 22/07/2008
Comment: Some people do find a problem with the paperwork, but its important to realise that whatever business structure you use you need to keep good accounting records and keep up to date with tax and vat payments. Good advice should always save you tax, and there are many efficient electronic web based services to help with limited company document filing. An online document filing portal is free when you form a Ltd Co for £25.57 through our website. ( You dont have to use us as your accountants either to form a company ! )
Website: www.blevinsfranksaccountants.com
Author: Alan Young
Date: 22/07/2008
Comment: Phil's right there Tina. You can form a limited company for £25 now, and there is no paperwork involved anymore. It's all filed online. You just fill in your details, and away you go.
Everyone I've spoken to feels it is simple and straightforward (as is bourne out by the two comments above your own)
Apart from the Annual Return, once a year, the paperwork is no more onerus than any other business structure, in which case I would suggest that either;
(a) the paperwork would have been 'overwhelming' even as a sole trader, or;
(b) for some reason, you are doing far more extra paperwork than you need to.
If you would like to let me know your specific problems, I might be able to help there, if only to determine which of the two it is..
Website: www.1staddition.co.uk
Author: Phil Hogan
Date: 24/07/2008
Comment: I started my own business two years ago and was advised then by my accountant to go Limited for tax savings. Also, as a non financial person, I needed to ensure that I had the financial experts working with / for me, and as such look after my payroll, tax returns etc allowing me to develop my business. The monthly payments I make to my accountant has been well worth the investment.
Website: Klerr.co.uk
Author: Alan Young
Date: 24/07/2008
Comment: Sound advice there Phil. It's like most things in business. We should all play to our strengths, and focus on what we're good at. I don't think I have more than half a dozen clients who do it half and half. Apart from one or two who do their own payroll or tax return, the majority get us to deal with all financial matters on their behalf. As you say, this allows them to carry on and run their business, doing the things they are best at.
An increasing number of our clients are also chosing to pay monthly, as it gives them the ability to budget their payments, and they always know exactly where they stand.
Website: www.1staddition.co.uk