Soletrader vs. Limited Company: Wouldn’t It be GREAT to Save More of Your Money?

Below is a Preview of the book, ‘How to Make Your Tax Sexy’, by Ruth Noel.

Why You Need a Limited Company

As a sole trader (self-employed) you could be paying up to 45% tax. The maximum your limited company would pay is 20%. And it’s going to go down to 19% next year.

This is a massive savings that we can create just by setting up your own limited company in a day or two.

Over the past years many people have asked me curiously ‘what is the difference between being a sole trader and setting up a limited company?’

These are two different legal structures of running a business.

And the secret is they can have different tax advantages as well as many other benefits of a limited company.

This article will help you decide if you want to be a sole trader or limited company.

The sole trader definition is a form of business in which one person owns all the assets of the business (

Whereas a UK limited company is  legally separate from the owner.

Unlike sole traders this means that your personal money and assets are not tied with the business risk. 

What Do You Get If You Create a Limited Company?

-To recap, the company has a legal existence separate from its management and its members (the shareholders) which is good protection for you as you will have limited liability.

-You have the opportunity to maximise your personal allowance which is £10,600 for 2015 -16.

-You can also keep cash in the business as a loan to the business, so that the company receives gross interest, and only pays 10% tax on the first £10,000 taxable profits.

-You can easily offset your income streams with a wider range of allowable expenses in order to reduce your tax liability. The greatest advantage is better tax planning opportunities.

-For example if your company makes £60,000 in profit you can take £40,000 and leave the remaining £20,000 in the business to avoid the higher rate tax threshold.

-When you experience this financial liberation you will also be motivated to grow and expand your business and set up better budgeting.

-Apart from money, there are other benefits for small businesses to register a limited company.

-The company’s name is protected with Companies House and you can protect the value of your intellectual property.

-Additionally, when you correspond with other companies they may view you as more professional and committed for the long-term.

-You will also find that managing your finances using small business accounting software will give you a clearer insight into how well your business performing. 

Do you now see why I never stop talking about limited companies?! 

Building long-term wealth is my love. So if personal wealth, freedom or building a legacy is important to you too, then a limited company is a natural step in the process.

What You Need to Be Aware Of

There are a few disadvantages of a private limited company.

To make sure you are on track to be profitable you should get business advice and prepare a business plan. Another consideration is you will need to pay to form a limited company, but we offer a fast and economic option to register a business. 

Each year you will need to file your accounts at Companies House and submit a tax return to HM Revenue and Customs (HMRC). As your business grows and you make more sales you will also need to register for VAT. We can help you plan and manage all of these areas so don’t let this hold you back. Contact Us Today to Discuss Your Needs.

What Next?

For a Self Employed & Limited Company Tax Calculator Session contact us to find out if you really would be better off running a limited company.

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