Three Benefits of Becoming a Limited Company

June 9, 2012

As a chartered accountant, I’m frequently asked about the costs and benefits of becoming a limited company. It’s a topic that weighs on the mind of many sole traders, and it is a decision not to be taken lightly. To help you understand the benefits, and drawbacks, of becoming a limited company, we’ve put together this blog.


1. Protect Yourself from Financial Ruin


As a sole trader, your business is very much entwined with yourself and your personal life. You, as a person, are the business, which means that you take on the legal obligations of the business. In the event of financial difficulties, unpaid creditors, suppliers, loan companies, etc, are all going to be knocking at your door.


Becoming a limited company, however, turns your business into its own separate entity. While we wish your business a lifetime of prosperity, in the event that it does go bust, you are protected from financial ruin, as the business, not you, inherits all the accumulated debts.


2. Become a Limited Company and Improve Commercial Credibility

In the business world, reputation means a lot. Businesses that deal with large companies — such as printers, marketers and software developers — can expect the topic to crop up during sales negotiations.


Having the status of a limited company gives your business commercial credibility, it makes you look like a large, impressive organisation, even if you are just a small two-person operation working out of the home office. It gives the impression that you are a professional in your field, so confident in your abilities that you took that step to starting your own company, offering an air of respectability that could be vital for securing clients. You may be no more qualified or experienced than when you were a sole trader, but when it comes to appearances, you’ll be better off as a limited company.


3. Pay Less Tax as a Limited Company


They say there are only two certainties in life: death and taxes. While our accountants can be miracle workers, unfortunately, they can’t do anything about the former. The latter, on the other hand, is a different story.


With the change to a limited company comes an assortment of different tax requirements that must be adhered to. Having to deal with more complex tax may sound off-putting, but it actually offers a way of saving money compared to a sole trader.


For example, let’s say you earn £30,000 a year. If you follow the most tax efficient pathway through the business year, at the end of it, you’ll be £3000 better off that you would as a sole trader; and the savings only increase with the more money you earn. Of course, most people don’t know the most tax efficient way to operate a limited company, but our chartered accountants from Leeds do. Make the transition from sole trader to limited company and let us help you save huge figures on your tax returns.


The Only Downside of Becoming a Limited Company


Unfortunately, there is one downside to becoming a limited company. At Russell Smith Chartered Accounting, we are all about honesty and want to make sure you are making a well-informed decision when taking the step from sole trader to limited company. The downside comes in the form of increased administrative tasks and paperwork.


There is a certain level of simplicity to being self-employed when it comes to finances. Tax is less complicated, you earn money differently and you don’t have to concern yourself with jargon such as ‘dividends’. Limited companies, by contrast, are more complicated, attracting different tax and legal obligations.


Our chartered accounts based in Leeds, however, have a wealth of experience managing limit company financial and legal obligations. Clients who have made the transition to being a limited company have found it much easier to deal with the increased admin and paperwork with our help.

Having to make a choice whether or not to become a limited company likely stems from that fact that your small business is growing and developing. When things get bigger, they also get more complicated, including business finance. Our expert chartered accountants from Leeds are on hand to help you make that transition from sole trader, and can help you discover the benefits of becoming a limited company for yourself.

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