Self-employment or Limited company?

  • by Carole Jordan
  • 21 May, 2015
Label saying the boss self-employment or limited company?
When going in to business it is vital to understand the implications this choice can have. So we’ve developed a factsheet to help outline the pros and cons of each option.

Self-employment

Your business profits will be taxed under Income tax rules, and partners will be responsible for their share of profits.

Advantages Disadvantages
  • Flexibility – legislation is less strict on the criteria for business expenses.
  • Income Tax is payable later than for Company Directors.
  • Income Tax is paid in three instalments – in the January of the tax year in which your accounting date falls and the following July & January.
  • Lower NI costs compared to income taken as salary from Company.
  • Fewer statutory controls – no audit or registration requirements.
  • Confidentiality – your financial results do not have to be made public.
  • Draw your money out whenever and however you wish.
  • Unlimited liability – if your business accumulates debt your creditors are entitled to recover from your personal as well as your business assets.
  • Joint & several liability – your creditors could sue you for the full sum owed to them.
  • NI payments do not provide the same benefits as employees, eg. Sickness, maternity and unemployment benefits.
  • Some organisations will only deal with limited companies.
  • You will be taxed on profits even if you do not withdraw the money.
  • Personal tax rates are currently higher than rates for small companies.

Limited company

Your company will be a separate legal entity, distinct from directors and employees who work within it. The company will have owners who are the shareholders, these may or may not also be directors or employees. Your business profits will be taxed under Corporation Tax rules.

Advantages Disadvantages
  • Limited liability – provided no personal guarantees are signed the creditors of the company may only recover their debts from the assets of the company.
  • Business easily transferred – because the business stands alone it can be easily transferred by the transfer of shares.
  • Improved benefits – as employees of the company directors and staff gain all benefits from National Insurance.
  • No other company may use your name.
  • Profits can be withdrawn as dividends to reduce tax and NI liability.
  • Statutory requirements – Accounts must be in the statutory format. Audit required for Companies with turnover exceeding £6.5m per annum. Accounts must be filed at Companies House.
  • Must keep “proper accounting records.”
  • Higher administration costs.
  • Director’s responsibilities – liable to prosecution if not adhered to.
  • Higher National Insurance costs.
  • PAYE due on profits withdrawn as salaries and bonuses.
  • Drawings can only be taken as Dividends or salary.

All details above were correct at the time of publishing - for more up to date information please get in touch .

You might also be interested in...

If you enjoyed the blog, why not leave us a comment, or share it with a friend...

Free advice delivered to your inbox

Browse our other blog posts...

Our latest blog

by Carole Jordan 19 Jan, 2018

It’s always nice to reward your employees, especially those who may have worked for your business for a long time. Find out how you can do this and still reap the tax benefits.

by Carole Jordan 12 Jan, 2018
Now, more than ever, exporting across the world offers an opportunity not seen for many decades. 

If you want to grow your exports then the government want to help you on your way with Finance, Insurance and opportunities to meet potential customers. Yippee!

by Carole Jordan 08 Jan, 2018

There’s a hidden gap in skills and knowledge between those of us who are qualified Accountants, and those who refer to themselves as Accountants.  Every day we make an investment in your business to ensure you receive the quality of advice you need to protect your business.

by Carole Jordan 03 Jan, 2018

It’s January and its ‘National Pay Your Self-Assessment Tax Month’!
Your tax return should be safely in the HMRC net now but if you didn’t file before 12th December you will not receive a statement and payslip in the post. In any case, it’s best to brace yourself for making the payment as the statements are drip feeding very slowly through the postal system as I write.

by Carole Jordan 15 Dec, 2017
An easier way to pay your impending tax bill could be through your PAYE tax code. Find out if you qualify and how you can go about setting this up.
More posts
Share by: