Limited Companies

The main advantages of having a Limited Company are:

• Separate entity – a Limited Company is its own legal entity, meaning liability is held by the company not the individual
• Tax efficiency – a Limited Company director will often draw a low salary before any tax is due, and the remainder in dividends which are taxed at a low rate. This can work out much more cost effective than paying tax and NI on all your profits.
• Professional status – Limited Companies have more prestige when it comes to business image, making them appear bigger, potentially attracting clients more so than if you were self employed
• Company name – when you set up your Company at Companies House, no other business can use this name. It isn’t uncommon for a business to setup a Limited Company and file dormant accounts, purely to reserve the name
• Company pension contributions – a Limited Company can make pension contributions as an allowable expense against profits, saving 19% Corporation Tax on the overall cost. This works out much more tax efficient than making contributions personally from your post-tax income.

The main disadvantages of having a Limited Company are:

• Harder to setup – setup with Companies House can be complex for some and may require the help of an experienced accountant
• More filing obligations for Limited Companies than there are for sole traders. Annual accounts must be filed with HMRC and, also with Companies House. You must also file an annual Confirmation Statement at Companies House. Failure to meet these deadlines can result in hefty penalties and potential Company strike off
• Accountancy fees – the majority of businesses under a Limited Company will use an accountant, unless you really know your stuff enough to do it yourself
• Less privacy – if you have a Limited Company, your annual accounts and Company details are on Companies House for the public to see.

Your accounts must be filed at Companies House and HMRC 9 months after your company year end.

For example, if your year end is 31st March you must file your accounts by 31st December.

When you have a Limited Company, you must pay Corporation Tax on any profits made.

Your profit is what is left after any business expenses are deducted from your business income.

Any Corporation Tax due must be paid to HMRC 9 months and 1 day after your company year end.

For example, if your year end is 31st March, your tax must be paid by 1st January.