Should I register as a limited company?
So you’re online profile and brand is growing, great! But are you wondering whether you should be setting yourself up as a limited company rather than self-employed? There is lots to consider when weighing up the two options, and pros and cons to both. Lets try and help you make sense of this…
What is the difference between a limited company and a self-employed individual?
As a self employed individual you are personally responsible for all that you do, and that includes full responsibility for all of your business operations. By law, you and your business are considered the same thing.
By registering as a limited company your business becomes a separate legal entity to you as an individual, which means you limit your personal liability. Your business is responsible for it’s actions, such as paying debts and liabilities, not you personally.
What are the pros and cons of each?
Each option has its own set of pros and cons, but it ultimately depends on your specific circumstances and aspirations. Here are some common advantages and disadvantages of both options.
Self employed
Pros…
It’s really easy to get started: registering as self employed is the quickest and easiest option for anyone just starting out. There are very few rules and regulations that you have to consider, you simply register as self-employed with HMRC here and remember to pay your taxes once a year.
You make all the decisions: as a self-employed individual, you are in complete control of every aspect of your work, from choosing clients to setting prices. You are your own boss and can make decisions based on your own values and goals.
Cons…
No protection from personal liability: unlike limited companies, self-employed individuals lack legal separation between their personal and business assets. This means that any debts or liabilities incurred by the business can be taken from their personal assets.
You can only raise limited finance: you can fund your business through savings, money from friends or family or maybe even a bank loan, but it is much more challenging to get external funding as a self employed individual.
Limited company
Pros…
Losses and debts aren’t personal: limited companies provide legal separation between personal and business assets, which protects personal assets from any debts or liabilities incurred by the business. This also means you can’t be personally sued.
You can be more tax efficient: becoming a limited company gives you the option to pay yourself in whatever form you choose, be this by dividend or salary, or a combination of both. As dividends have a lower tax threshold this could allow you to save on your tax bill each year.
Cons…
More taxes and paperwork: starting and running a limited company carries more taxes and paperwork than being self-employed. This can be more costly and time-consuming. But don’t worry, we can help you with this!
A loss of privacy: with a limited company, you must comply with certain regulations, one of which is to publish annual accounts with Companies House. Your company’s registered address and certain financial figures will be available to the public.
If you want to discuss the benefits of each in more detail, or would like our help in registering yourself as either self employed or a limited company then drop us a call on 0730 041 0801 or an email at hello@twentyaccounting.com.