Advantages of Going Big and Forming a Limited Company in the United Kingdom
Transitioning to a private limited company is of great importance. More importantly, this progress can play a significant role in determining your organisation’s success.
Sole trading is the most common form of business ownership in the United Kingdom today. However, several undeniable advantages come with forming a limited company.
We have prepared the perfect guide for everyone wondering how to form a limited company.
What is a Sole Trader?
Before forming a limited company online, you should know the dynamics of sole trading and its role. A person has to register as a sole trader if he meets the following points;
- Earned over £1,000 from self-employment from 6th April one year to 5th April the following year.
- Claims that a person is a self-employed individual. For instance, when he is claiming tax-free childcare.
- Made voluntary National Insurance payments in Class 2 to qualify for benefits.
The business you own is associated with you as a sole trader. If you, for some reason, are unable to work, your business will cease to operate.
Advantages of Forming a Limited Company
Transitioning to a private limited company requires more work than registering as a sole trader. There are several requirements that entrepreneurs should meet before they move into a limited company model.
All the steps you take will, most importantly, help your company progress. Let us now look at some advantages of forming a limited company.
Tax Advantages
Once you register as a limited liability company, you are bound to benefit from several tax advantages. To start with, entrepreneurs will pay less tax than what is required for a sole trader. So, profits made by your limited company will be subject to corporation tax. The corporation tax is set at 17% from April 2020 onwards.
In addition, as an owner of a limited company, you can take shareholder dividends and a small salary from the monthly income. Doing so will allow you to reduce the amount you pay towards National Insurance Contributions (NIC). Moreover, since limited companies are taxed separately, they aren’t required to submit NIC payments. Tax reductions allow owners to take a bigger cheque home from their business.
Separate Legal Entity
Incorporating your business as a private limited company gives it its unique identity. Limited companies happen to be separate from the person in charge. You will separate everything from credit agreements to bank accounts, loans and assets.
Due to the legal status of limited companies, the personal and private assets of the owner will remain protected. So, you will treat the company as a separate legal entity with limited liability protection even during cases of bankruptcy. The business itself will pay off any/all losses incurred by the business during operations. Do not confuse your private assets with those of the business in a limited company.
More User Confidence and Professional Image
Setting up a limited company will help give your business a more professional touch. Without a doubt, customers trust limited companies more. Moreover, they are more loyal to them than to sole traders.
Even in the B2B market, many large companies will refuse to do business with sole traders and prefer private companies. Opening new markets is one of the many advantages of being a limited company over a sole trader.
Better Business Financing
Funding your business with external finances can be much easier if you are a limited company. Many private lenders, including banks, will be able to trust you more if you update your business status to a limited liability company.
Besides just approving loans, lenders will also be willing to provide you with better interest rates and loan terms. The financial market in the UK is growing, and private limited companies get to benefit the most out of this economic surge.
Will Protect Business Name
The state of the UK will legally protect your business name. The Companies House maintains a list of protected business names.
Once you register as a private limited company, UK Law protects your business name. Therefore, no other entity can use it. Additionally, no other organisation can take a name similar to yours. Moreover, registering as a private limited company can reduce fraudulent aftermarket products.
Business Costs
Most people consider the costs of setting up a limited company to be extremely high. It may surprise a few people that they can set up their private limited company for as little as £eight. You do not need expensive legal help to do the bare minimum and register your company as a private limited.
You can always go for external help from business advisors. A helping hand can help ease you through the transition.
Now that you understand the benefits of forming a private limited company, you can look for advisors. If you are still wondering, ‘should I form a limited company?’, our answer is a resounding yes.
You can contact us if you are looking for advisors to form your private limited company and avail of our company formation services.