As a freelancer, you’ve probably experienced the freedom and flexibility that it come with.
But it might be time to contemplate a new direction for your business – setting up a limited company.
This is a significant move that could unlock a range of benefits and new opportunities for your business.
Here’s a closer look at why transitioning to a limited company could be a smart next step for you.
Maximising tax benefits
Running a limited company can offer some impressive tax perks. For the fiscal year 2024/25, you’ll pay just 19 per cent Corporation Tax on profits up to £50,000.
Compare that to personal income tax, which can climb to 45 per cent on earnings over £125,140 for additional rate taxpayers.
This difference means you could keep more of your earnings by choosing dividends and other smart tax strategies.
Dividends are taxed at a much lower rate—8.75 per cent for basic rate taxpayers—making them a great way to save on taxes compared to salaries.
You can also benefit from the annual dividend allowance and claiming capital allowances on assets like machinery can further trim your taxable profits and lower your Corporation Tax.
Protecting your personal assets
One of the primary benefits of a limited company is the protection it offers to your personal assets.
In cases of financial trouble or legal claims against your company, creditors generally cannot access your personal assets to settle company debts.
This separation provides peace of mind, as your personal finances remain safeguarded from business risks.
Opportunities for growth
If you’re considering expanding your business, structuring it as a limited company can make it easier to attract investors and secure funding.
The flexible ownership options allow you to bring on partners or investors without increasing your personal liability, which can be key for growing your business and reaching your long-term goals.
Financial advantages
As a director, you have the opportunity to make pension contributions that are both tax-efficient and beneficial for your retirement.
Contributions made by your company are treated as deductible business expenses, helping to lower your company’s taxable profits while simultaneously growing your pension pot.
Additionally, limited companies can write off a broad spectrum of expenses—everything from travel and office supplies to other essential costs.
By making the most of these allowances, you can enhance your savings and improve your cash flow management.
Boosting your business’ reputation
Operating as a limited company can enhance your business’ reputation.
Clients often view limited companies as more credible and established compared to sole traders, which can be beneficial in competitive fields.
Larger clients may prefer working with limited companies, potentially leading to bigger contracts and exciting opportunities.
Important considerations
While establishing a limited company offers numerous advantages, it’s crucial to be mindful of the potential challenges and drawbacks.
- Administrative burden – There are a lot of admin tasks involved to remain compliant with legal requirements from Companies House, such as filing annual accounts, tax returns, and maintaining detailed records.
- Extra time – The administrative tasks can be time-consuming and may require professional assistance.
- Incorporation and compliance costs –The expenses associated with setting up and maintaining a limited company can be significant, especially for smaller or newly established businesses.
Seek professional advice
Considering the complexities of setting up a limited company, it’s smart to consult a qualified accountant for personalised advice and informed decision-making.
Get in touch with us today for expert support and personalised assistance in establishing and managing your limited company.