Deciding on the best structure for your business can be a difficult decision for many entrepreneurs and small business owners in the UK. There are various options to choose from, including sole trader, partnership, and limited company status. In recent years, forming a limited company has become an increasingly popular choice. Here are some of the main benefits of going limited in the UK:
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Limited Liability
One of the biggest advantages of a limited company is the protection it provides from personal liability. With a limited company, finances are separate from your personal finances. The company’s debts and liabilities remain with the business. As a director or shareholder, your personal assets are protected should the company run into financial trouble. This makes a limited company an attractive option if there are risks associated with your type of business.
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Tax Efficiency
Limited companies can be more tax efficient than operating as a sole trader or partnership. There are more allowable expenses you can claim for, which reduces your taxable profits. For example, money drawn from the company as salary is tax deductible for the business. Limited companies also benefit from lower Corporation Tax rates compared to higher Income Tax rates. Careful planning of salaries and dividends can lead to less overall tax being paid.
Credibility & Professionalism
Operating as a limited company can make your business appear more credible and professional to customers and clients. The formal company structure inspires confidence in potential customers that you are an established business. Using ‘Ltd’ in your company name also looks more prestigious than operating under your own personal name. This can help create the right impression with clients, just make sure you choose the right company name, as there is a lot in the name. A poorly chosen name can ruin the perception so be sure how to choose the company name as you don’t want to change it down the line.
Easier Administration
Running your business through a limited company can streamline administration and paperwork. Accounting and tax paperwork is maintained separately from your personal finances, which keeps things simpler and well organised. Opening a business bank account is also easier when you have a registered company. Administration tasks, like invoicing, can also be done in the company name rather than your own personal name.
Access to Finance & Investment
Having a limited company structure opens up more options when seeking finance and investment. Bank loans are sometimes easier to access for limited companies. The company also looks more attractive to potential investors and shareholders if you want to expand the business. Both debt and equity finance become available to fuel your company’s growth.
Limited Regulation
Starting and running a limited company is a straightforward process with limited red tape. You don’t need any qualifications or licenses, just register the company with Companies House and adhere to annual reporting requirements. Hiring employees and renting premises as a limited entity is also hassle-free. Overall, operating under company structure means less regulation for your business.
Forming a limited company requires some admin like appointing company directors and filing annual accounts. But the time spent is usually outweighed by the many benefits limited status can offer a small business in the UK. The limited liability, tax efficiency, credibility and access to finance are key advantages for entrepreneurs thinking about taking their business venture to the next stage.
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