Thursday, 16 February 2012

Changing your business into a limited company

You may be wondering whether or not it would be worth changing your business from being a sole trader into a limited company. Some of the advantages and disadvantages of doing this are as follows:


Tax and National Insurance Savings

It might seem that there is no tax/national insurance benefit to trading as a limited company, but this is in fact not a correct view. Whilst benefits are dependent on your circumstances, the reality is that most people will be saving tax as shown in the table below. Of course, this benefit is minor until you reach profits of around £30,000 and are expecting to maintain this level or expecting your business to carry on growing. This benefit is because limited companies do not pay National Insurance contributions or a higher rate of tax.

The table below should provide you with a good idea on how much you can be saving by making your business into a limited company during 2012/2013.






Tax and NI payable:





As sole trader





As company





Potential saving





Protection of Personal Assets

There are also a number of other ‘non-tax’ factors. For example, a Self-employed person’s business affairs and personal assets are not separate. Therefore, a Limited Company will protect your personal assets from unpaid Trade Creditors, Inland Revenue and Customs & Excise should the business have a claim against it. Protection may also be derived against other commercial risks. Any protection is reduced to the extent that any personal guarantees are given. Where there is bank borrowing, the Bank often ask for personal guarantees where a Limited company is involved. In any event, these ‘non-tax’ factors are also an important incentive to incorporate.


Extra administration Costs

Naturally there will be an increased cost for your annual accounts preparation to cover the more complex needs that a company has, however it is likely that your tax savings will be greater than the additional accountancy costs which would still make incorporation favourable. You can contact me and we can discuss what you can expect to pay.

If you feel that incorporation into a limited company is the way for you, then be sure to contact me so we can discuss if this is the right direction for you, and how we can go about it.


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