Setting up a limited company as a tradesperson
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Setting up a limited (Ltd) company is a big step that can help you grow as a business. There’s lots of paperwork, but lots of protection too...
While many tradespeople operate happily as sole traders, for some forming a Ltd company is a great option for future-proofing their business for growth down the track.
What are the benefits of setting up a Ltd company?
- To many people, a limited company looks more professional than other structures. You get to call yourself a director, have a registered office and over time can build up a solid reputation for your business.
- A Ltd company is totally separate from you and your finances. So, if the company goes bust, you’re not held personally responsible for any debts.
- It’s easier to pay salaries as a Ltd company, and you can create your own Pay As You Earn (PAYE) tax scheme.
- As a director, there are tax benefits too. By using a combination of PAYE and dividends, you’ll typically pay less tax than you would be paying in income tax as a sole trader.
- If you ever want to sell your business, it’s a lot easier as a Ltd company.
Considerations before setting up a Ltd company
- There’s lots of paperwork to complete, file and manage, and as a director, it’s your legal duty. It can be a big responsibility and HMRC won’t accept any excuses!
- You’ll need to complete annual accounts, keep all receipts for up to seven years and keep HMRC up-to-date on all aspects of your business.
- As a director, your information is publicly available from Companies House.
- Business admin costs can quickly add up. You’ll probably look to appoint an accountant to manage your taxes. You may also want to employ a bookkeeper to keep everything ticking over.
Registering your Ltd company
If you’ve searched online, you’ll already know that there are loads of sites that offer to help you set up as a Ltd company.
If you know what you’re doing, you can register a Ltd company for £12. Or you can use a company formation agent to help you.
A company formation agent will charge around £100 for the service but will provide simple and straightforward guidance for completing all forms.
It might be tempting to go it alone, but if you’re setting up a limited company for the first time, we advise you to find a trustworthy accountant to work with before starting. They can help ensure that you make the best start to running your company. Ask people you trust for recommendations and advice.
A good accountant can also give advice about your personal tax situation, including helping you register for self-assessment tax.