Moving from Self-Employed to Limited

Everything you need to know about making the move

Are you thinking about moving from self-employed to limited? Its ok, you won’t have to spend an endless amount of money and the overall process is quite straightforward. We have put together this jargon-free guide to walk you through the steps so that you can see exactly how easy it is to make the move from self-employed to limited.

At Futurelink Group, we have a wealth of experience in dealing with both self-employed individuals and limited company owners. We can help you to navigate through the complex world of tax by taking care of all of your accountancy needs, leaving you with more time to focus on the day to day running of your business. Call our friendly experts on 01923 277 900 and they will be happy to tell you more about our solutions.

The following paragraphs will cover:

  • Making the move from self-employed to limited
  • The advantages and disadvantages of operating as a sole trader
  • The advantages and disadvantages of going limited
  • How our limited company solution can help

Making the move from self-employed to limited

Before you make the move from self-employed to limited, there are a few things to consider because it isn’t always a given that operating as a limited company is the best option for you:

  • Are you likely to incur many expenses?
  • Do you think that you will make a profit in excess of £25,000 per annum?
  • Is your image as a company important in your ability to be successful?
  • Will your earnings fluctuate from year to year?
  • Do you have a pension or retirement plan?

Thinking about the above should help you to determine whether going limited is right for you. Some companies only deal with limited companies and if you expect to earn over £25,000 there are a number of tax planning opportunities for you to take advantage of. On the other hand, if you don’t expect to earn much and only plan on taking on a few small jobs here and there, operating as a self-employed sole trader is probably the best route for you. It’s ok; if you aren’t 100% sure which route you should take, our customer care team will be happy to discuss your options.

Advantages and disadvantages of being a self-employed sole trader

Operating as a self-employed sole trader has a number of advantages but you also need to be aware of the drawbacks. One of the key attractions for many people who choose to operate as self-employed is the simplicity of it all. You can register online with HMRC in just a few simple steps and then all you need to do is keep track of your income and expenditure so that you can submit a tax return every year. Ultimately there are less administrative demands on your time and you can focus your efforts into developing your business.

However, there are some drawbacks of operating in this way. Whilst it is simple, you won’t be able to take advantage of the tax planning benefits that come hand in hand with owning a limited company (more on this later) and you’ll also have what is commonly known as unlimited liability. In a nutshell, this means that you and the business are considered one entity, so its debts are yours. As a result, your personal assets could be seized if you fall behind on any business repayments that need to be made.

Advantages and disadvantages of owning a limited company

Should you choose to operate through a limited company, it takes a bit more time for you to register your company. You’ll need to register with Companies House so that your company can be incorporated, but Futurelink Group can help you with all of this. Our expert accountants are well served with years of experience in forming limited companies, call them on 01923 277 900 and they will be happy to help.

One of the main attractions of working through a limited company is the tax planning opportunities, which is particularly useful if your earnings can fluctuate from year to year. Corporation tax is charged at a flat rate of 20% on company profits up to £300,000. However, income tax rate bands increase on personal earnings far lower than this amount, click here for a full breakdown of income tax rates.

As an example, let’s say you make a profit of £50,000 this year and only £10,000 next year. If you decide to draw the full £50,000 out of the company this year, you’ll be required to pay a higher rate of tax. However, you could draw out £30,000 this year and leave £20,000 in the company to be drawn out next year when your earnings are slightly less. Meaning you draw a salary of £30,000 each year and as this falls in the lower income tax band of 20% you’ll pay less income tax over the 2 years.

Another key thing to consider is that many companies only deal with limited companies. Therefore, if you are in an industry where suppliers and customers are likely to take this approach, it’s worth considering making the move to limited to ensure that you don’t lose out on any potential business.

How our limited company solution can help

We can manage your limited company and take a great weight off your shoulders by looking after the bulk of your administrative duties. Setting up and managing your own limited company can be time consuming; you need to complete VAT returns, prepare your self-assessment tax return and handle corporation tax. This can all get quite overwhelming if you aren’t an expert in accountancy!

At Futurelink Group, our expert accountants can take care of as much or as little of your accountancy needs as you require. We’ll help you to form your limited company, make sure you never miss a deadline with HMRC and free up your time so that you can focus on the general day to day demands that come hand in hand with being your own boss.

For further details on our limited company solution, please call our friendly customer care experts on 01923 277 900 and they will be happy to help and talk everything through in a jargon-free manner.

Now that we have covered making the move from self-employed to limited, you might also find the following pages useful:

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