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Thinking about switching from a sole trader to setting up a limited company? There are plenty of benefits of a limited company.
Whether you’re newly self-employed or have been in business for years, it’s going to seem like a big step. But we’re here to help!
Let’s dive right into each one so you can decide if the benefits of setting up a limited company are the right ones for your business.
Wondering if there are any tax benefits to setting up a limited company? Tax efficiency is key when it comes to keeping your money in your own pocket (rather than HMRC’s) and ltd companies might just have a leg up on sole traders.
Switching to a limited company could help you keep more of what you earn. Here’s why.
Limited companies pay corporation tax on their profits at a flat rate of 25% (for the 2024/25 tax year). If we compare this to the tax rates for sole traders, it’s clear that those in a higher tax bracket could save hundreds or even thousands in tax.
It’s not just higher earners that could benefit though. You might also be able to save some money if your earnings fall under the basic rate.
| Income | Tax rate | |
| £0 – £12,570 | 0% | Personal allowance |
| £12,571 – £50,270 | 20% | Basic rate |
| £50,271 – £125,140 | 40% | Higher rate |
| £125,141 and over | 45% | Additional rate |
Many limited company owners choose to pay themselves a salary that aligns with their personal allowance, which is a tax-free sum of £12,570 for the 2024/25 tax year.
On top of that, they often take dividends throughout the year to make up the rest of their salary. Dividends are taxed at a lower rate, which means more money stays in your pocket.
For example, the first £500 of dividends is tax-free. After that it’s:
So, by setting up a limited company, and a sprinkle of tax knowledge, you could reduce your tax bill and keep more of your hard-earned money!
Be tax efficient without lifting a finger with our tax advice service! No mistakes, no stress. Get expert advice from an accredited on your tax situation in a 1-1, 30 min consultation.
Ever worried about your business debts putting your personal assets at risk?
When you’re self-employed, your personal assets are on the line when it comes to business debts. This means your home and savings could be taken away if your business were to get into trouble.
One of the benefits of a limited company is limited liability protection. This keeps your business completely separate from your personal life. It’s the opposite of unlimited liability.
And while the risk really does depend on the nature of your business, it’s a nice safety net to have!
Planning for retirement? It might seem like a lifetime away, but limited companies offer more flexibility when it comes to pension contributions.
As a director of a limited company, you can make pension contributions directly from your company’s pre-tax profits.
This also reduces your corporation tax bill while boosting your retirement savings.
Tax relief on pension contributions can also be handy. Contributions made by a limited company are treated as an allowable business expense, reducing the overall taxable profit for your business. It’s a win-win!
The advantages of a private limited company don’t stop there! First impressions matter. And having “Ltd” after your company name can work wonders for your professional image.
Clients and potential partners sometimes see limited companies as more established and trustworthy. This boost in credibility might even help you land more contracts and negotiate better deals. Think of it as a little makeover for your business!
Dreaming of growing your business? As you should!
Well, we have some great news. Limited companies generally find it easier to access funding and attract investment.
You can raise capital by selling shares, making it an attractive option for investors. Plus, banks and financial institutions often see limited companies as less risky, so securing business loans is simpler. So, more funds could mean more opportunities to scale and succeed. How awesome is that?
As a limited company, you can employ people. Alright, that might sound a little obvious but it could be a real game-changer for your business.
More hands on deck mean you can delegate tasks, tap into different skills, and boost your productivity.
Sure, being an employer comes with legal responsibilities. Managing the payroll is something we could all do without! But the potential for growth definitely makes it one of the key benefits of a limited company.
Not quite like the tv show, but almost. What happens to your business if you decide to step down or retire? With a limited company, succession planning is a lot easier. And having a clear succession plan is important for any business.
Ownership can be transferred through the sale of shares with an ltd company. At the moment, if you’re a sole trader, your business is tied to you personally. This makes it harder to transfer.
So, if succession planning is important to you, setting up a limited company could be worthwhile.
If you’re thinking about making the switch from sole trader to limited company, it’s a good idea to seek out a professional. For a low-cost, fixed fee, speak to an accredited accountant 1-1 to get you started.
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