There are three major factors to consider when deciding whether it is beneficial to trade as a limited company.

Tax advantages of trading through a limited company.

From a purely tax point of view, it is nearly always advantageous to trade as a limited company.  The tax advantages arise because the owner of a limited company is able to draw profits from their company as a dividend. Dividends are not subject to National Insurance Contributions and have a lower income tax rate applied to them than earned income. The tax advantages of trading as a limited company have been eroded in recent years, as the taxation charged on dividends received has increased significantly.

A company is a separate person in the eyes of the law.

As a general rule, the owners of limited company do not have to settle the debts of their company when the company is unable to do so.

A self-employed business and its owner are the same person in law and hence any debts of the self-employed business are the liability of the business owner.

A self-employed person is therefore at greater risk of being made bankrupt or of` losing their personal assets (for example their house) in order to settle their businesses debts.

Additional administrative burden

There are additional costs and duties associates with trading as a limited company, including the requirement to submit accounts and other documents to Companies House.

Action plan

For further assistance in this matter, or any other issues relating to owner managed businesses, please phone Shacklefords Chartered Accountants on 0121 448 7466 or e mail info@shacklefords.co.uk