It’s a question many sole-trade businesses ask themselves from time to time. For a lot of them they think that to be a limited company you have to be a multi-national firm, with 100 staff and making millions of pounds. This could not be further from the truth. Any business can become a limited company. While this is not a one size fits all when it comes to the treatment of tax for businesses. A general rule for business earning a profit of around £25,000 plus. Then this is when a review should take place.
There are 9 areas that should be taken into consideration:
Unlike sole traders, a limited business is legally separate from its business owner, who has limited liability
As a limited company, personal assets are not exposed – you only stand to lose what you put into the business
These added responsibilities going limited that can be time-consuming,
Information about your business can be found via Companies House, meaning details on directors and your business
Once you’ve registered a business name nobody else can use it, in contract to sole traders who are not offered the same protection
Sole traders have unlimited liability, which means there’s no legal difference between themselves and their business – so if the business gets into debt, the business owner is personally liable
Sole traders can lose personal assets if things go wrong
Raising finance can be tricky as a sole-trader, as banks and other investors tend to prefer limited companies. This limits the expansion opportunities of sole traders
Tax rates on sole traders aren’t always as kind as they are on limited companies. When you reach a certain level of earnings, it might not be quite as lucrative to stay a sole trader
During the current cost of living crisis, we have noticed a increase in the amount of sole traders making the switch to Ltd Company. Even more seeking the help of accountants and financial advisors to ensure their business, their family home and other assets are as protected as possible.
Another aspect to consider at the moment are that prices and costs can easily build up. Dipping into the business overdraft or credit cards to cover these costs may seem like a good idea but they are only a short-term fix that can lead to long term problems. In order to product yourself as the business owner and your business now maybe the to time sit down again to review what is best for you and your business moving forward.
If your still confused or need help taking the next step don't hesitate to reach out - we are happy to help: