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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.

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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.

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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.
Setting up a Ltd company isn’t right for everyone, but if you have big ambitions for your business in future, it’s definitely an option you’ll want to consider.
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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.

Setting up your business