You’re doing really well as a sole trader. You’re turning over more profit every month, you’re taking on more staff, you’re in more demand than ever before – but your tax bill (especially your national insurance contributions) are creeping up and up. You may also be worried about impressive ever-bigger clients, or about being liable for company debts. It may well be time for you to start thinking about quitting life as a sole trader and setting yourself up as a limited private company.
This blog will highlight a few of the factors which might mean a change is on the cards. All of these reasons may be enough to convince you to become a limited company, but make sure you work with a chartered accountant before you make any major financial decisions about the future of your business.
You want to become more tax efficient
If you’re enjoying ever better profits, but finding that your tax bill is growing at the same rate, it’s most likely time to become a limited company. Once you are a limited company, you will be taking money from the business in the form of dividends ( which are national insurance free) and a small salary. This could mean that you pay substantially less tax and make more of the money your business earns.
You want limited liability
As a sole trader you are liable for your business’s debts. As a limited company, the buck stops at your business. This means less personal risk and responsibility for you.
Limited companies have more prestige
From clients to potential business partners, limited companies are perceived to have more clout than sole traders. They’re often perceived to be more successful, more serious and more dependable than sole traders, with a more established reputation. True or not, it’s certainly a preconception worth considering when you want to grow your business.
Are you considering registering as a limited company? Perhaps you’ve already made the leap – what has been your experience? Share your knowledge and opinions with other sole traders below.