Many people would say that it’s a great step to go from being self-employed to become the head of your own limited company. Though being a sole trader is still popular in the UK, fully-fledged limited companies are showing some undeniable benefits.
Want To Be A Sole Trader?
If you want to set yourself up as a sole trader in the UK, this is a quite simple process with clear regulations. This is the reason why each year, thousands of new self-employees choose this option. The process of registration is simple. You can register online for Self Assessment with HMRC. You’ll be provided with a personal tax code reference number. If you want to set up as a sole trader, you need to fulfill some criteria:
- You’re ought to earn more than £1,000 from self-employment between 6 April current year and 5 April following year.
- You need to provide the proof that you’re self-employed. Especially if you want to request Tax-Free Childcare or other benefits.
- You should also make voluntary Class 2 National Insurance payments. That will help you qualify for the benefits.
You can simply account your business incomes and outcomes at the end of the tax year. You’ll do it through the annual self-assessment system. Of course, you’ll pay HMRC the taxes and National Insurance contributions you owe them. You will get your personal online tax account. You can use it to keep a check on possible benefit payments you may receive. Also, for submitting figures for the annual self-assessment and paying taxes. However, you must be aware that your personal property or other assets may be at risk. Especially if you stop working. If you need to close your business for any reason, your assets will be liable for any company debts you may have at that moment. Therefore, you need to be careful and clear your business debts if you have any.
Thinking Of Forming Your Own Limited Company?
Maybe you have higher ambitions and thinking of setting up a limited company in the UK? There are many benefits, but also some aggravating circumstances when setting up a Limited Company.
Going through the company formations process involves more work. You cannot simply register, as self-employees do. Therefore, professional help is almost always needed. According to YourCompanyFormations, there are many statutory administrative and financial duties when performing with operating limited companies. Furthermore, there are some extra tasks. But, as many experts claim – it’s worth the effort. With a limited company status, you can gain many advantages. So, why should you consider forming your own limited company in the UK? Here are some of the reasons…
1. Tax Benefits
When you register a limited company in the UK, you’ll most likely pay less personal tax compared to a self-employees. Your company profits will be subjected to corporation taxes. For the current tax year, these are set at 19%. There is a possibility that this rate will down to 17% in April 2023. As an owner and the head of your company, you can take a small salary. Therefore, you may have a larger income from your shareholders’ dividends. This way, you can reduce the costs you have to pay to the National Insurance Contributions (NIC). Since the dividends are separately taxed, they will not be subjected to NIC paying.
2. You’ll Have A Limited Liability Protection
Unlike sole traders who haven’t got limited liability protection, limited companies do. While self-employees are personally responsible for their assets, limited companies get “the limited liability protection”. That means that any loses made by your company will be paid off by your company and not you personally. You can cover any of your company loses from recovering security deposits or selling your company assets. Anyway, your personal assets and finances will stay intact.
3. More Professional Company Image
A limited company formation will you a more professional look without any doubt. Such companies usually earn more trust from customers. They will most likely believe in the services or products from such a company. It will also improve inter-companies business. Many business clients or potential associates refuse to do business with a sole trader. On the other hand, they will be more than willing to cooperate if you’re running a limited company.
Now you know some benefits of forming a limited company in the UK. You may try some of the formations you can get quickly, professionally and online. The formation experts are there to help you, guide you and make your company a successful one. So, go ahead!