What’s best? Limited company or self employment

Author: Russell Smith
May 11, 2015

This is a big question for most businesses at some stage, either at the beginning or part of the way through.

Before I blog about the pros and cons, here’s a couple of points:

* VAT rules is the same for both limited companies and self employment
* Employment rules is the same for both limited companies and self employment
* You can become a limited company after you have been self employment (and vice versa)

Now that’s out of the way, here are 3 advantages of becoming a limited company:

1. You pay less tax.  Here’s the numbers:

Profit                            Tax saving
£20,000                      £982
£30,000                      £1,882
£40,000                      £2,781
£50,000                      £3,909
£60,000                      £4,108
£70,000                      £4,308

Note, this is based on profits not revenue

2. Being a limited company can you give you commercial credibility i.e. you can win bigger customers because you look bigger than you are.  In some cases, becoming a limited company is essential because some businesses won’t deal with self employed individuals (e.g. local councils)

3. If your business goes bust and you are self employed you go bankrupt.  If you are a company, the company goes bust, you are protected from bankruptcy.

So far, so good, here’s 3 disadvantages:

1. There’s 3 times the volume of accountancy and tax work.  Hence accountancy fees are roughly 3 times the size (although in virtually all cases, it still works out better given the tax saving)

2. It is more complicated, whilst we do 99% of the work, it take a bit of a time to get up to speed (whereas being self employed is pretty straightforward)

3. You have to set up a company bank account, so you may be charged

Any questions on this, feel free to email me at russell@rsaccountancy.co.uk

 

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