Starting a business can be a daunting task, and one of the first decisions you will need to make is how to structure your company. In the UK, you can either be self-employed or set up a limited company. While both options have their pros and cons, it's important to understand the differences between them so you can make an informed decision. 
 
As a self-employed individual, you are responsible for all aspects of your business, including finding clients, invoicing, and paying your own taxes. You are not required to register as a sole trader with Companies House, but you must register as self-employed with HMRC and pay income tax and National Insurance on your profits. You are not legally separate from your business, which means you are personally liable for any debts or obligations. You can register as a sole trader here Set up as a sole trader - GOV.UK
 
On the other hand, a limited company is a separate legal entity from its owners. The company is responsible for its own debts and obligations, and the owners (also known as shareholders) are not personally liable. Limited companies must be registered with Companies House and have at least one director, who is responsible for managing the company. Directors also have legal obligations and must follow certain rules, such as keeping proper financial records and filing annual accounts. 
 
One of the main advantages of setting up a limited company is the potential for tax savings. Limited companies are taxed differently than sole traders, and the tax rate can be lower depending on the level of profit. Limited companies also have the option to pay dividends to shareholders, which are taxed at a lower rate than salary. 
 
Another advantage of a limited company is the ability to attract investment. As a separate legal entity, a limited company can issue shares and raise capital through investment. This can be especially useful for businesses that are looking to grow and expand. 
However, setting up and running a limited company can be more time-consuming and expensive than being self-employed. Limited companies are required to follow more stringent rules and regulations, such as holding annual general meetings and filing annual accounts with Companies House. This can be a burden for small businesses with limited resources. 
 
In summary, the main difference between being self-employed and setting up a limited company is the level of personal liability and the potential for tax savings. If you are just starting out and have a small, low-risk business, being self-employed may be the simplest option. However, if you are planning to grow and expand your business, or if you are concerned about personal liability, setting up a limited company may be the better choice. It's important to carefully consider your options and seek advice before making a decision. 
 
My Cloud 9 Accounting can help to advise you on what is the best route for your company. For more, information contact them at [email protected] or call them on 0161 401 4633. 
Tagged as: Accountants
Share this post:

Leave a comment: 

Our site uses cookies. For more information, see our cookie policy. Accept cookies and close
Reject cookies Manage settings