Category: Self employed

Eight Advantages Of A Limited Company

What are the advantages of a limited company? In our last article, we discussed the merits of setting up as a sole trader. This is certainly the most popular way of running a business when you start-up. However, once your company has been trading for a while and is growing, it may make more sense to set up as a private limited company. Setting up a limited company is fairly straightforward. However, it is important that you understand your legal situation regarding the financial arrangements you need to put in place and the other responsibilities that a limited company entails. In the latest article from team4, we look at the definition of a limited company, why you should set one up and the main advantages.

What is a limited company?

A limited company is a business structure that is a separate legal and financial entity from the person or people running it. The company has limited liability, which means if the company fails or is sued you are only liable for the face value of your share in the business. Beyond that your personal assets are protected.

Unbiased

A limited company is a company limited by shares or limited by guarantee.

Limited by shares are usually businesses that make a profit. This means the company:

  • Legally separate from the people who run it
  • Has separate finances from your personal ones
  • Has shares and shareholders
  • Can keep any profits it makes after paying tax

Limited by guarantee companies are usually ‘not for profit’. This means the company:

  • Is legally separate from the people who run it
  • Has separate finances from your personal ones
  • Has guarantors and a ‘guaranteed amount’
  • Invests profits it makes back into the company

GOV.UK

Private and Public limited companies

There are two types of limited companies in the UK. These are namely private and public. In general, private companies are smaller with a few shareholders, whereas public companies tend to be larger and have shares that can be bought and sold.

Key points about a limited company:

  • Separate entity
  • One or more directors
  • Own bank account
  • Can be bought or sold in the form of shares
  • Must be registered at Companies House
  • Limited liability

Benefits of setting up a business as a limited company

  1. In most cases, your overall tax burden as an owner or director will be lower than a sole trader. Limited companies pay corporation tax on their profits, the rate of which is currently between 19% and 25% dependent on the profit of the business.

 

  1. It is a separate legal entity. The ownership of assets, a business bank account, and any involvement with contracts etc. is company business and separate from the interest of the company shareholders.

 

  1. You will have limited liability. This means that your liability for any financial losses incurred by your business is limited. You will not be liable to pay any business debts personally.

 

  1. Often, it creates a stronger brand and a more professional image. You may find that larger companies you want to deal with are more inclined to deal with incorporated businesses rather than sole traders.

 

  1. As you have to register your company with Companies House, the company name is legally protected. Your name cannot be used by any other business. This is in comparison with a sole trader whereby a company could trade under the same name as you, with little you can do about it.

 

  1. You may find it easier to secure business finance.

 

  1. As a limited company, you can issue shares. You then can sell shares within your company or transfer ownership of shares. The shareholders agreement will outline your responsibilities and this will also describe how any conflicts arising can be addressed.

 

  1. It can also be easier to sell or transfer ownership of your company, should you want to sell it in the future. You can sell everything tied up in your business, such as equipment and clients, whereas with being a sole trader, many elements of your business are tied up to your specific identity.

The disadvantages of a limited company

To give a fair picture, it is also important to be aware of the disadvantages of a limited company. These can include more paperwork and compliance. You will need to file annual accounts and hold annual general meetings. These can not only be costly, but also time consuming. A limited company may potentially be more expensive to set up as you will need professional advice and assistance.

How can team4 help you with setting up a limited company?

The main benefits of setting up your business as a limited company include limited liability, tax advantages and increased credibility. In most cases, setting up a limited company isn’t expensive or difficult. If you feel that the advantages we have described in our latest article would suit your business or if you are considering outsourcing your accounts, please contact team4. Call team4 on 01825 763378 or email info@team4bookkeeping.co.uk

 

We are based in East Sussex and have clients nationwide. Please contact team4 to find out how we can help you.

You Are The Business As A Sole Trader

If you are starting a new business, do you want to set up as a sole trader? It’s certainly an exciting time as you think of what to call your company, how to brand the business and get noticed by those all-important customers. There is certainly a lot to do, but part of the process is picking the right structure for your new company. You will want to adhere to all the legal requirements and to also stay tax compliant. Whether you set up as a sole trader or a limited company is an important consideration. If you are not sure whether you should register as a sole trader, our latest blog explains what it entails, the benefits of being a sole trader, as well as the disadvantages and how team4 can help you.

What does being sole trader entail?

 A sole trader is a self-employed person who owns and runs their own business as an individual. The simplest way to run your business is to register as a sole trader. By doing this, you do not have to pay any registration fees, but you must register as self employed. You will need to inform HMRC and you will then pay tax through Self Assessment. This means filing a tax return every year. It’s at this point you will have to decide if you are going to do the accounts yourself or whether you need a bookkeeper to do them for you. By going down the route of being a sole trader, you get to keep all the profits you make. Sounds good? However, you are also personally liable for any debts that your company incurs. This could be a risky way to do things if your new business needs a lot of investment. In short, if your company runs into financial trouble, creditors can come after your house and possessions.

Benefits of being a Sole Trader

  • No requirement to register with Companies House
  • Can start working straightaway
  • Complete control with no shareholders or directors
  • No Corporation Tax or Accounts to Companies House
  • Easier to set up than a Limited Company
  • Simple to switch to being a Limited Company in the future
  • Financial information is kept private
  • You are your own boss – you are the business

You will need to register within three months of starting up your business and then submit an annual Self Assessment form and pay Class 2 NICs.

Disadvantages of setting up as a sole trader

  • Unlimited liability – you are personally responsible for any debts and losses of the business, including outstanding tax, rent etc.
  • Less credibility – not as appealing as a limited company to customers, so check how your competitors have set up their businesses
  • More difficulty in getting financing
  • Full responsibility – you are accountable for everything and make all the decisions

How can team4 help you as a sole trader?

You will have to maintain accurate accounting records as a sole trader that follow standard accounting practice. These will have to include records of your sales and expenses. You’ll actually find that these are invaluable when completing your annual self assessment tax return. Here at team4, we can help you decide whether this is the most flexible and cost-effective route you should take and also advise you when it’s time to set up as a limited company. The most important thing for us is that the operating structure you decide to implement is the most beneficial one for you and your business. We pride ourselves in helping self-employed people to not only set up their businesses but to also grow them as well. Please get in touch with us so you can decide if starting out as a sole trader is right for you. Call team4 on 01825 763378 or email info@team4bookkeeping.co.uk

Next time we will be looking at Limited Companies in more detail, so stay tuned.

A Guide To Self Employed Expenses

When you work for yourself, the last thing you want to do is to pay more tax than is necessary. The things you can claim for are termed allowable expenses and these can then be deducted from your turnover to work out how much tax you need to pay. Sounds simple enough? However, it’s not quite so straightforward and it can be complicated knowing what you can claim for and what you can’t. Here at team4 Solutions, we know that people often get it wrong if left to their own devices and try to claim for all sorts of things that are not tax deductible expenses and are not strictly related to their business. This article is a brief guide to self-employed expenses, which will help ensure you pay the right amount of tax as a sole trader – but not a penny more! So if you are interested in any tax-saving opportunities as a self employed person, read on as we shed light on some of the main business expenses you can claim for with HMRC.

Why is it important to know the expenses you can claim against?

It doesn’t matter whether you’ve been self-employed for just twelve months or longer; all sole traders are entitled to claim for allowances and expenditure relating to their business. If you are self-employed, claiming as much tax relief as possible is important for several reasons. Firstly, you could be incurring business costs and not claiming them for tax deduction. Secondly, claiming all your costs ensures that you are following HMRC guidance and they really want you to pay the exact amount. Thirdly, you will also be able to evaluate the true profit you are making from your business.

In this article, we look at the following in more detail:

 

Work Clothing

If you wear clothing to perform your job exclusively, irrespective of whether it is branded or not, you can claim the purchase of it as an expense as well as its maintenance by washing.

Travel Expenses

a) Vehicle allowances

Actual costs are allowable expenses for vehicles, but only permitted for the business elements of fuel, parking, repairs, servicing, breakdown cover and insurance.

Crucially, travel between home and work is not covered or any speeding or parking fines incurred and any non-business driving costs.

b) Mileage allowances

If you do not want to claim the actual expenses of buying and running a vehicle in your business, you can use the simplified method, which is to claim business mileage. You are able to claim forty-five pence per mile for the first ten thousand business miles. Anything over this figure will be claimed at a rate of twenty-five pence per mile.

c) Train, air and taxi costs, hotels and meals

You can also claim business expenses for any other business-related travel costs, such as train, air or taxi fares for business purposes, hotel rooms, for example following an industry seminar or conference and meals during overnight business trips.

Buying or leasing a car or van for exclusive work use

a) Purchasing a car or a van

If you buy a car or a van through your business, it will be listed as a fixed asset to your company, a form of plant and machinery. As such, you will be able to claim capital allowances on the value of your purchase, reducing your taxable profit.

b) Leasing a car or a van

If you choose to lease a car rather than buy one as a self-employed person, you can opt for one of three lease options:

  • Hire Purchase
  • Finance Lease
  • Operating Lease

Each of these methods comes with its own set of rules, so it is well worth speaking to an expert before you commit. You will want to go for the best option for your business.

Tools and machinery required to carry out your work

If your profession as a self-employed person relies on tools and/or machinery, it is possible to claim back tax on replacing and maintaining your essential equipment. You are also entitled to claim relief when you first purchase the item either through a capital allowance or as an allowable expense.

Training

Training costs relating to your trade are also tax deductible.

How team4 can help you claim your expenses correctly

This is designed as a brief guide, as all businesses are unique with differing circumstances. Tailored advice to your specific business is suggested. It is certainly in your interests to claim business expenses, but they must have been incurred wholly and exclusively for the purpose of running your business. If you are at all unsure, please get in touch with team4 on +44(0)1825 763378 or email info@team4bookkeeping.co.uk