April 24, 2023 NB Accounting Services Limited

Are you finding it difficult to decide whether to trade as a self-employed or limited company?

As a business owner, one of the biggest decisions you will have to make is how to structure your business. For many entrepreneurs, the choice comes down to whether to trade as a self-employed individual or as a limited company. In this blog, we’ll explore the advantages and disadvantages of each option to help you make an informed decision.

Self-Employed

Advantages:
  1. Simplicity: Being self-employed is straightforward and requires less paperwork compared to a limited company. You only need to register as self-employed with HMRC, keep track of your income and expenses, and file a self-assessment tax return once a year.
  2. Control: As a self-employed person, you have complete control over your business. You can make all the decisions and do not need to consult with anyone else before taking action.
  3. Flexibility: Self-employment offers flexibility in terms of working hours, location, and the type of work you do. You can choose to work from home or rent an office, set your own schedule, and take on the projects that interest you.
Disadvantages:
  1. Unlimited Liability: One of the biggest drawbacks of being self-employed is that you are personally liable for any debts and legal claims against your business. This means that your personal assets, such as your home, car or savings, could be at risk if your business is sued or goes bankrupt.
  2. Limited Access to Financing: As a self-employed person, it can be challenging to secure financing from banks and other lenders as you may not have a track record of revenue or profit.
  3. Limited Growth Potential: As a one-person business, your ability to take on larger projects and expand your business is limited, which can stifle growth.

Limited Company

Advantages:
  1. Limited Liability: One of the most significant benefits of incorporating as a limited company is that you are not personally liable for any debts or legal claims against the business. This means that your personal assets are protected, and you only risk losing the amount of money you have invested in the company.
  2. Access to Financing: Limited companies often have better access to financing as they are viewed as more stable and reliable than self-employed individuals.
  3. Tax Efficiency: Limited companies can be more tax-efficient than self-employment as they can pay corporation tax on profits rather than income tax on earnings. Additionally, dividends paid to shareholders are subject to lower tax rates than income tax.
Disadvantages:
  1. Administration: Limited companies require more administration than self-employment, including the need to register with Companies House, maintain accurate financial records, and file annual accounts and corporation tax returns.
  2. Less Control: As a limited company, you will need to adhere to corporate governance rules and may need to consult with other shareholders or directors before making significant decisions.
  3. Increased Costs: Incorporating a limited company can be more expensive than registering as self-employed due to legal and accountancy fees.

In conclusion, both self-employment and limited company structures have their advantages and disadvantages. Choosing the right structure for your business depends on your individual circumstances, goals, and preferences. We recommend seeking advice from an accountant or financial advisor before making a final decision.

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