Q: Is there any advantage in changing from being self-employed to a limited company?
Aug 17 2005
Answered by: Jackie Jarvis Ask a question
While a few years ago, there was a fairly even balance between the two ways of doing business, several changes have been introduced which mean that a limited company is becoming the sensible option for more entrepreneurs.
There used to be far more paperwork and record keeping with a company, but the introduction of self-assessment for tax, means that the administrative burden for the self-employed has become heavier. And recently, the limit on turnover for companies, which requires an audit has been multiplied. So if your limited company has sales of less than £1 million you don’t need to get an audit carried out, thus saving money, time and effort. Note this doesn’t apply to plc companies. Suddenly, the extra burden for directors compared to self-employed has gone.
Perhaps of even more interest to you, because it hits you right in the pocket, is the fact that tax rates favours a limited company. A recent report, conducted by The Federation of Small Businesses, concluded that on profits of £15,000, a self employed person may face a combined income tax and national insurance bill around 32 times greater than the equivalent level of corporation tax a limited company would have to pay. On profits of £30,000, meanwhile, a self-employed person would face an income tax and NI bill of £7,234 – some £3,580 more than a limited company would face.
Yet another change in favour of the limited company has been the Chancellor’s decision to phase out retirement relief over the past few years. As a result, the sellers of businesses, which are not companies, have been adversely affected. Company sales can be a lot simpler.
Finally, the limited liability for a company gives some protection (although not complete) to a director compared to the horrors of bankruptcy for the self-employed.
Copies of The Federation of Small Business' report can be downloaded from www.fsb.org.uk.
Comments