When you decide to grow your business, one of the popular ways to do it is to become a Limited Company (also known as incorporating your business). I’ve asked an expert to comment on this, in this case my accountant, Andrew Minsky, from Nyman Linden. Andrew got in touch with me via Twitter when I was looking for an accountant recommendation, although of course I checked out the company properly before signing up with them!
Andrew talks here about the pros and cons of going Limited, and what it means for your business and income. I’ll be posting some stories from people who’ve done this with their businesses – do get in touch if you have experiences to share on this. But for now, over to Andrew …
Should I incorporate my business? (become a Limited Company)
If you are in business, you typically have two options available to you – Self-employment (being a Sole Trader) or setting up a Limited Company.
Setting up as a sole trader is simplest, and if you are new to running a business, this can be advisable in the start-up phase, whilst you get used to the accounts and tax requirements. Furthermore, if you incur trading losses, these can be claimed against your other income (a Company can only claim against its income).
However, if you are looking to grow your business and/or are expecting profits over £35k annually, consider using a Limited Company. A typical business earning £35k profits would save around £2,500 in tax & NI as a Limited Company.
Advantages of a Limited Company arrangement
- You can control the timing, amount and nature (i.e. dividends, salary) of your income.
- There are numerous tax advantages, including but not limited to:
- Assuming that you are not caught by the IR35 rules, you will remunerate yourself by drawing a small salary and draw the remainder of the profit from the Company as a dividend. These dividends do not attract National Insurance contributions, saving NIC.
- the ability to split the company shares between a husband and wife, thus taking advantage of both people’s own personal tax allowance and basic rate band.
- If you are earning at the high rate of tax (40%), the ability to leave the money in the Company, to be drawn at a later date at a lower tax rate. Higher rate taxpayers can save significant tax this way.
- A Limited Company pays tax 9 months (and 1 day!) after the year-end, e.g. 31 March 2014 year end pays tax on 1 January 2015. A sole trader typically will pay their tax bill ‘on account’, so for a 30 April 2014 year-end, the tax will need to be paid on 31 January 2014 and 31 July 2014. So, a Company is better from a cash flow perspective.
- As a limited company with a trading name you can appear more credible (from a marketing point of view) when applying for new assignments.
- The Company is a separate legal entity to you and liability for debts is Limited to the issued Share Capital: you personally are not liable.
Disadvantages of a Limited Company arrangement
- Increased administration of a Company, including the need to;
- File Company annual returns (£13 online)
- Prepare and file statutory accounts with Companies House and HMRC
- File Company tax returns
- File RTI Compliant payroll
This extra administration, however, will generally be carried out by your accountant.
How to register your Company
- online (£15) – but only if the company is limited by shares and uses model articles of association
- by post using form IN01 (£40-£100) – you must do this if you change the model articles or use your own
- using a formation agent (c.£50-£150) – typically accountants will use these to form on your behalf
Andrew Minsky is a Partner at Nyman Linden Chartered Accountants, based in Barnet but operating across the country.
Andrew qualified as a Chartered Accountant (ACA) in 2008, whilst working at a top 10 international practice. His career began in audit, advising large public sector clients, before moving into a more commercially focussed due diligence role at another international practice.
However, Andrew’s real passion lies in helping small businesses, helping their owners with the ever more complex tax regime, and advising them on how to save tax. He has his own portfolio of clients and actively works to recruit more. He recently achieved the highly sought after PCG accredited accountant status. He is responsible for the firms’ social media outputs and networking activities, and has a keen involvement in the firm’s PR and marketing initiatives.
Andrew married his wife Gemma in 2008 (a week after qualifying!) and is the proud father to his son Asher, born in 2012.
Andrew is also an Arsenal fan (long-suffering), and plays football twice a week for local teams to keep fit.