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Oct 15

6 benefits of running a limited company

Reading Time: 3 mins

Owning a limited company can be a very attractive proposition for numerous reasons. Many people choose to run their business as a limited company rather than setting it up as an LLP or sole trader. And who can blame them. The possible tax breaks and the sense of credibility and distinction that comes with setting up a limited company are two of the most common reasons people would want to run their business this way. So if you’re thinking of making the jump yourself, this is what you need to know about running a limited company.

 

Limited companies are simpler to run legally than sole traders or partnerships

The limited liability company (LLC) is becoming more popular in the UK. LLCs are seen as more tax-efficient, which can be beneficial for businesses. You can read more on business taxes from websites like Family Money.

A limited company — or “Ltd” for short — is a legal entity in its own right. The shareholders are the business owners, so although the company itself is liable for its actions, the individual shareholders are not.

This offers a number of advantages over other forms of business ownership, not least because it protects you from your personal wealth being at risk.

On the legal side, a Ltd company has its own registration, tax regime, accounts, and legal status. This makes it easier to structure your affairs as a business owner and enables you to avoid common pitfalls such as unlimited liability for personal debts and not declaring income.

 

Claim on limited company expenses

Limited companies are taxed differently from sole traders, and the tax system can be quite complex. However, there are some basic rules that limited companies must adhere to, including the Tax-Credit for employee business expenses.

The Tax-Credit for employee business expenses is very straightforward, and it allows employers to claim back 30% of employee business expenses, up to a maximum of £2,000. The Tax-Credit applies to all employees, including directors. The tax credit can be claimed via the PAYE system, so the company can make quarterly repayments to HM Revenue & Customs (HMRC). However, it’s important to note that the Tax-Credit is a limited company’s only tax benefit, so limited companies must utilise it.

 

The company is given more credibility

Taking the step to become a Limited Company does have its benefits for you and your customers. This gives customers and suppliers more confidence in a business, and you will find that more companies will want to deal with you rather than a non-limited company.

 

Separate Entity

An LTD company is an entirely separate entity from its owners. Tenders, contracts and all company accounts are company business and separated from the shareholders. In contrast, a sole trader is treated as one entity for tax and admin purposes.

 

Easier to get funding

An advantage of being a limited company is that it’s easier for people to lend you money. Lenders aren’t as interested in your personal finances when lending money to a company because it’s easier to track the company’s finances and obligations.

The eligibility criteria aren’t much different, either. What’s important is getting a solid business plan, which is critical when borrowing.

Lenders want to see that you have researched the likely outcomes of your business and that you have a realistic sense of how much money you’ll need. A business plan is also valuable when selling to an investor.

 

Naming your company

Once you register on Companies House, your company name is fully protected, your company name and anything similar cannot be used by others. As a sole trader, others can trade under the same name as you, which could damage your business reputation over time.

 

Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.

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