Is limited company status right for my Warrington business?

Is Limited Company Status Right for My Warrington Business?

Many of the businesses we deal with in Warrington start out as small concerns, either as sole traders or with just a few staff on board. Once they start to grow and become more successful, however, many consider whether it is worthwhile converting to limited company status.

Quite a few owners want to make sure their business is a success before they consider this natural step. Their initial time and energy goes into developing a strong customer base and perfecting their service or product. Some people simply don’t want the additional admin burden and responsibility that goes with owning a limited company.

Others, including those entrepreneurs who already have experience of running a business, decide to set up a limited company from the outset.

The Difference Between a Sole Trader and Limited Company 

A sole trader is someone who is in business for themselves, often referred to as self-employed or freelance. They are responsible for keeping their own financial records and paying their taxes through self-assessment with the HMRC. Basically, whatever you earn is designated as your self-employed income and is liable for tax and National Insurance contributions.  

A limited company is a separate legal entity and it has designated directors and shareholders. It can be run by just one person who will be the sole director and shareholder. The difference is that you take a salary from the business and the financial liability is on the company and not the individual.  

What Are the Pros and Cons of a Limited Company? 

From a strictly marketing point of view, a limited company can look a lot more trustworthy than sole trader status to a potential customer. It makes you sound permanent and financially viable particularly in certain business sectors.  

The liability aspect of a limited company can also be attractive because it reduces the risk on the individual. Even if you are the only person working in the business, your personal assets aren’t at risk because the liability is passed onto the company itself.  

By far the biggest reason why businesses opt for limited company status is to do with the amount of money they are earning. There is more flexibility when it comes to paying tax and what is due to HMRC. A limited company has to pay corporation tax but income tax is only paid on salaries that are given to employees within it, including the director. There are also a wider range of tax-deductible options available. 

One other advantage is that becoming a limited company protects the name of your business. You need to register with Companies House and your name has to be original – that means no one else can start trading with it as a limited company.  

The downside of running a limited company is that there is more paperwork, something you might well expect. You need to set everything up with Companies House and you need to give them a copy of your annual accounts as well as submit an annual confirmation statement.  

Most limited companies also use a professional accountant rather than doing this themselves. That’s mainly a way of ensuring their legal obligations are met – getting it wrong can lead to sanctions and being fined.  

Is It Right For My Warrington Business? 

If you are a contractor or freelancer who earns just a nominal salary then it may not be worth your while setting up a limited company. You may, however, want to reduce your liability or simply give your business a little more kudos in the eyes of potential customers. Sitting down with a limited company specialist beforehand is a good idea and gives you the chance to work through the various options and what is best for your business.  

Contact our talented and friendly Warrington accounting team if you would like to find out more.