Should Freelancers File As A Limited Company With An Accountant?

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If you have just started out in the world of self-employment, you might be wondering exactly what perks come with operating as a limited company. The answer to this really depends on the type of business you are running, but there is a simple way to find out for yourself.

Firstly, you need to understand the real differences between working as a sole trader and forming a limited company. The reason many freelancers opt to remain as sole traders is because they believe that it is a far simpler option. For companies generating less than £25,000 of profit a year, this could well be the case, as you are less likely to qualify for certain tax reliefs.

However, the only concrete way of deciding whether you are better off going limited is to weigh up all the advantages and disadvantages. An accountancy firm such as Aston Black can help you make this decision. So here are just a few key points to get you started.

Advantages Of Sole Trading For Freelancers

Continuing on as a sole trader is a path the majority of freelancers decide to take. If your business is small or you are working from home, you are very unlikely to earn large sums of money. The reasons a sole trader can benefit from this are:

  • No setup costs (you only have to declare yourself as a sole trader in your self-assessment tax returns)
  • Less government intervention (limited companies are required to register with Companies House etc.)
  • Only one tax return to worry about per year
  • Lower accountancy fees

It’s no wonder many remote workers see this as an easier life. But, as with everything, there are drawbacks. For one you are solely liable for any debt you incur, meaning your personal assets are at a much higher risk. If you are operating from your personal bank account then you will have to accept that your savings could be affected.

On top of this, you won’t qualify for any tax reliefs, which means you are likely to be taxed on everything you earn. Although it may seem like a costly route to undertake, forming a limited company could save you serious cash when your business finally takes off.

Advantages Of A Limited Company For Freelancers

So it would appear that sole trading isn’t always the most financially rewarding decision. What’s more, you might find that some customers (usually other limited companies) won’t do business with you unless you are registered as limited.

This is mostly reputational and down to the fact that limited companies are usually perceived as more trustworthy and professional. When going limited, you must register with Companies House, so your accounts can be filed for public use, making your business more transparent and accessible. Other benefits of choosing to become limited are:

  • Better tax schemes (although you must pay corporation tax, if you collect most of your income in the form of dividends, you will be able to take home an increased salary)
  • Limited liability (personal assets are a separate entity to business accounts)
  • Easier funding, since you will be judged on your business, not your personal life
  • Rights to your company name

Whilst it’s true that limited companies certainly don’t come with limited paperwork, it is worth bearing these advantages in mind when mulling over the future of your business. Enlisting the help of a professional accountancy firm can streamline the entire process. An accountant is more likely to understand the needs of your company and can provide answers to all your questions, be it on taxation, dividends or even just the basics of setting up and keeping your business financially secure.

Starting up a business is never a simple affair. Here at Aston Black, we understand that your business won’t have the same accounting needs as the next. For more information on any of our services please call us on 01908 904794 or get in touch through our website.

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