As with all things, there are pros and cons. The advantages of setting up a limited company are well documented, but it is only right to also run through the potential downsides so that you can make an educated decision.
Initial set up costs for a Ltd company can be higher.
As a sole trader, it will not cost you anything to start up. As a limited company there will be a one off fee to form your company. This fee can be minimal, as little as £12 to register directly with Companies House.
It is true that some companies charge a higher amount to set up a limited company, however the benefit in using a professional comes with the initial tax planning advice and registration process. Many companies will include VAT registration and set up of your business bank account as standard. Some contractors prefer the reassurance that for a one-off fee using a professional minimises any further complications that can be hard to amend with HMRC later down the line.
Be prepared for your company accounts to appear on Companies House records.
Because your company is registered directly with Companies House, you will be providing them with information on company accounts, records, directors and shareholders. This information is consequently published and can be assessed by anyone. As a sole trader you can keep those records private.
Accountancy fees can vary more for a limited company.
It is undoubtedly true that most accountants will charge more for preparing accounts for a limited company than they would a sole trader. However, the disparity between the two is no longer as significant as it used to be depending on how willing (and relatively confident) you are, you can handle a lot of the admin online with a good bookkeeping software.
Accountancy fees are also a tax deductible company expense so worth remembering when making your decision as this can reduce your corporation tax payments.
A fully inclusive package can be a good choice as your charges won’t vary so you’ll always know where you are. Take a look at our all inclusive accountancy packages here.
Be prepared to do a bit more admin.
To be honest, whether you’re a sole trader or limited company, good records are vital. A limited company edges it in how much time you’ll have to dedicate to paperwork, although not by a great deal. Whatever your business type we can’t emphasise enough the importance of good, accurate and timely record keeping. It really does come down to, does the time justify the take home pay and tax savings you will benefit from being limited.
If you don’t want to be worried every time you need to ask your accountant a question, an all inclusive accountancy package may be better for you – and this will be most beneficial in the early days when there’s a few more things to understand to put good practices in place.
We hope you have found this article useful. Now you know the potential disadvantages, if they don’t seem as daunting as you thought they might and want to go ahead and set up a limited company, we’ve put together a comprehensive article here – ‘How do I set up my Limited Company’. Alternatively for further advice, why not speak to our dedicated team of accountants on 0207 096 2659.