There are advantages and disadvantages by starting a business both as a limited company or the only trader.
Operating as a single trader gives the advantage of requiring a little in terms of administration. You must register as an entrepreneur with land income in the first three months of trade and you will pay self-assessment tax and national insurance.
As your single trader personally responsible for all the money payable to the government or creditors and therefore your personal assets including your home can be at risk.
There are several reasons why forming a limited company might be a better choice for you.
First, with the company ltd there is a “limited liability” to the company and therefore in terms of companies struggling to pay for their creditors and / or government, directors of directors of directors are not risky.
Second, perception as a company A Ltd tends to be better than being a single trader. When a company is formed, there is a perception that this business may be more serious, more professional, managed better and may have long-term business goals.
It is also believed that credit from banks or suppliers may be easier to offer to the company.
Taxation is also a consideration when deciding whether to form a company or for entrepreneurs.
Limited companies will pay corporate taxes for all profits (after salary) and for this small company currently standing at 21% (on an up to £ 300k) whereas if you are an entrepreneur will pay income tax.
Tax advantages of a company come from flexibility in determining the proportion of salaries paid and dividends paid, and single traders must pay income tax on a permanent threshold. Limited companies can pay dividends from corporate profits.
Therefore there is a significant limited tax advantage of the company over a single trader in a case where net income is less than 40% of the upper profit threshold.
Company Advantages Ltd. Increases in which the amount of net taxable profit above the 9% over the income threshold for income tax, due to tax rates for limited companies and dividend payments, less than 40% of high-level income tax rates.
The cost by producing a single trader account is less than a limited company since with a single trader there is no requirement for formal accounting systems and balance sheet production is optional. With a limited company account there are more obligations of the law and the possibility of you need to involve accountants who have all the necessary knowledge; This certainly increases your annual fee.
There are also several other financial differences related to pensions, vehicles, donations and several other expenses that can be dealt with differently for accounting purposes for limited companies as well as a single trader account.
So the tasks of a company directory are more formal than if you are self-employed and your decision is the way to continue it might depend on your own special circumstances. Many business owners start to become entrepreneurs and form companies Ltd after they are traded for a while and this process is quite easy.