Nine reasons to skip freelancing and go straight to a limited company set up
You’re starting out in business – great news. But you don’t know whether it’s going to be a success or whether it’s really for you. Or perhaps you simply think it’s all too much hassle.
While you may think that makes going freelance perfect business sense, you may want to think again, and here are nine compelling reasons why going straight for a limited company set up is the way to go.
1. Protecting your personal financial liability
As a sole trader, you have sole responsibility for your business and in the eyes of the world, your business and your personal life are not distinct from one another – in essence, you are your business. This means that when it comes to your finances, these are also considered one and the same. And if your business gets into financial difficulty, you’ll be expected to use your personal assets to bail your business out.
As a director of a limited company however, your personal finances are separated from your business, and they are protected if your business has financial troubles.
2. Protecting your business name
When you’re self employed, while others should still be selective when choosing a business name the same or similar to yours, there’s no legal structure in place to stop them from choosing a name that conflicts with yours. This really depends on the proximity of the other business from your own, but if they’re not close, they could have the same name as you and possibly benefit from your brand equity.
When you register as a limited company, you’re also registering your business name with Companies House, making sure that no one else can trade using the same name.
3. Can you sell your business on?
As your freelancing business is not distinct from you personally, you won’t be able to sell your business on.With a limited company, you don’t have these constraints, and you’ll be able to sell your business on whenever you’re ready – hopefully for a tidy profit!
4. Are there any tax benefits?
As a sole trader you will need to set yourself up with a self assessment tax return each year, paying tax on the profits you make.
As a limited company director, after corporation tax has been paid, your company profits can be taken as dividend. This means that you can take a relatively low wage that attracts only the basic rates of PAYE and National Insurance, and you can top this up with your dividend at the end of the year.
5. Does your business look more established?
When you’re freelancing, others may feel that you are offering your services as a short term measure, rather than being in it for the long haul.
As a limited company, your business has an air of seriousness – that you have ambition and that you are therefore safer to do business with. Your customers can also check you out with Companies House, to make sure you are who you say you are.
Setting up a limited company is quick and easy, and can be relatively cost efficient too. While you’ll need to make annual returns to Companies House, you can seek help with these from your accountants, and as a freelancer you’ll still need to keep detailed accounts for your HMRC tax returns. So if you’d like to get the most out of your business, choosing to look into the limited company option could save you time and hassle later down the line.