Should I be Self Employed or a Limited Company?

To answer this question there are many different factors to consider but the one major factor that is likely to attract freelancers is the tax saving that can be made by trading through a Limited Company as opposed to becoming self-employed.

The savings depend on profit and individual circumstances, but this table gives an indication of the savings in tax and national insurance you are likely to make:
 

Annual Earnings Total tax if trading with Ltd Company Tax & NI sole trader Saving
       
£20,000.00 £2,900 £4,400 £1,500
£30,000.00 £4,800 £7,400 £2,600
£40,000.00 £6,700 £10,500 £3,800
£50,000.00 £10,700 £14,600 £3,900
£60,000.00 £14,700 £18,700 £4,000
£70,000.00 £18,600 £22,800 £4,200
£80,000.00 £22,500 £26,900 £4,400
£90,000.00 £26,400 £31,000 £4,600
£100,000.00 £30,400 £35,100 £4,700 

WHAT ARE THE OTHER ADVANTAGES OF BEING A LIMITED COMPANY?

  1. The 'limited' part of a limited Company means that the Company's liability to any creditor is limited to the assets (cash, cars, equipment etc.) that are in the Company. What this means is that should you get into financial difficulty with the company, your personal assets (your house is usually the main one) will be safe. 

The only exceptions to this are if you have given any personal guarantees for any lending the company has (the bank will usually insist on this), or if you have taken more out of the company that you were entitled to. This basically means that you have to keep enough money aside from the company for your tax and VAT.

  1. Public and customer perception is that a Limited Company is a more substantial entity than just being a sole trader. You may find that this leads to the chance of bigger assignments or higher rates.

WHAT ARE THE DRAWBACKS?

  1. Accountancy fees will increase. You can add on around another £500 a year minimum in additional accountancy fees.
  2. More regulation - as well as the Inland Revenue and the VAT office you will now have to deal with Companies House (your accountant will take care of this for you usually) and face stiffer penalties for missing any deadlines.
  3. Accounts visible to the general public (and of course your clients/customers). You will usually submit an abbreviated set of accounts to Companies House which does keep to a minimum the amount of information which is available for public record.

More on running your business and limited companies.

                             

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