12 Jan Should you register as a limited company in 2018?
If you’ve had a good year trading as a sole trader in 2017 then it might be time to look ahead and consider registering as a limited company in the 2018-2019 tax year. There are accountancy benefits to registering as a limited company but it will also change your VAT registration requirements. Here we explore the pros and the cons of becoming a limited company.
What are the benefits?
A limited company will be taxed differently to a sole trader. As sole traders are effectively earning they are taxed through income tax, whereas limited companies will enjoy a flat rate of tax (20% up to £300,000 of profits). As a sole trader you’d be paying more tax on this as soon as you begin earning more than £45,001. With the right accountant you can then take earnings out of this business in a much more tax effective manner.
What are the risks?
Creating a limited company will separate you from the company. This is both a risk and a benefit because it means that if something does go wrong then your maximum liability is the investment in the company. A sole trader going bust, however, would be liable for all of their personal assets too. It can be harder to take assets out of a limited company but this can be done with the right advice.
So how complicated is it to become a limited company?
Setting up as a limited company is more complicated than setting up as a sole trader, but it is not an onerous procedure. You will then be required to submit annual returns to Companies House and will need to file a corporation tax self assessment return to the HMRC. When making the switch it is wise to make use of accountants and payroll assistance to ensure that you are following the rules correctly.
Setting up as a limited company can benefit you in the long run. As a good rule of thumb, if you expect your profits to be greater than the personal allowance of £11,500 in 2018 then it is worth considering setting up as a limited company and seeking financial advice.