If you are considering moving from permanent employment to contracting, the first step and decision you will have to make is whether to operate as a sole trader or set up a limited company. Below you will find the top 10 reasons in favour of the latter.
The key benefit to going the limited company route is that owners and shareholders (as individuals) are not held personally responsible for debts earned if the limited company is declared insolvent – meaning zero or low risk.
Clients – and even suppliers – often feel more comfortable dealing with a limited company than a sole trader. A limited company tends to project a more professional image and instil confidence in others.
There is no set time period within which a limited company must start trading, therefore, the business can be registered long before it becomes operational – meaning the name is protected in the meantime. Knowing there is a company out there boasting your name is also a great motivation to get things moving.
A huge advantage of being a director of a limited company is that you will most likely pay less tax than if you operate as a sole trader (where your entire income is subject to PAYE and NI contributions. As an example: if you are the director and shareholder of a limited company, you can avoid paying large PAYE or NI contributions by drawing a smaller salary and taking most of your remuneration as dividends.
As a limited company, you also have the option to register for the flat rate VAT scheme, which allows you to keep some of the VAT you receive from your clients.
If you build up a successful business and want to retire or sell; transfer of ownership is possible, and in most cases, fairly simple.
There is no doubt that you are more likely to be successful when seeking funding as a limited company than as a sole trader.
Setting up a limited company is fairly inexpensive, depending on whom you choose to register your company with. Depending on the accounting services you take the set-up is often included.
Nominee shareholders may be appointed and you need not reveal who is actually running the company.
As a limited company you can claim back many business expenses; including accounting fees, travel costs, and equipment. Your executive pension is even a legitimate business expense.
“There are many reasons to choose to set up a Limited Company. But it all depends on your particular circumstances,” advises 1st Contact Accounting..
“Once you’ve done all your research, speak to an expert about your unique needs, plans and aspirations and make sure the first decision you make as a contractor is the right one for you.”