Setting up multiple companies to separate business interests can seem very straight forward. There are however important considerations. We explore the implications of owning too many companies.
Thinking of Incorporating your Business?
6 June 2024
Accounting & Compliance, Ambitious Startups, Building a Business, Structuring a Business
Are you a sole trader/ a partner in a partnership thinking about incorporating your business in the UK?
Have you considered that there could be both advantages and disadvantages in this decision?
What do I need to think about?
Incorporating your business is a big decision.
It changes the way the taxes is applied to your profit, alters how you can draw money out of your business and generally the whole structure of the business would be different.
Making an informed decision
To help you to make an informed choice we explore the pros and cons of incorporating your business:
Advantages
Limited Liability Protection
As a limited company, the liabilities are owed by the company and therefore in the event of any potential liquidation, your personal assets would be protected (provided you haven’t personally guaranteed any debts), whereas as a sole trader, you have unlimited liability. It doesn’t even have to mean your business has traded poorly, you could have a legal matter and this would leave the company liable for any payouts.
Enhanced Credibility
In many cases, a limited company can be seen as a more credible and professional business and therefore it may be easier to win future work.
Increased Funding Opportunities
There are more opportunities to raise funds as you can potentially sell shares to investors or make use of tax efficient schemes such as EIS & SEIS
Tax Planning Flexibility
Depending on the business profits, there are potentially large tax savings that can be made by planning your remuneration carefully and retaining unused profits in the business
Additional Tax Allowances
There are also various tax allowances that a limited company can get that a sole trade would not such as R&D
Disadvantages
Increased Admin
There is a far larger administrative burden with a limited company and generally speaking it is more costly.
There are more filing deadlines to consider and additional forms etc that you wouldn’t need with a sole trade business
IR35
You have to consider the work you are doing for clients as there is always the risk as a limited company that you could fall foul of IR35 rules and end up with a hefty tax bill!
Complex Taxes
Whilst there are many situations where you will save tax as a limited company, unfortunately it is not that simple and there are also cases where you can end up paying more tax!
Loss of Simplified Benefits
As a sole trade you can avoid the need for benefits on things such as cars
Making the Decision
Incorporating your business is not a simple decision and what works for one may not work for another.
There is a process of elimination and calculations to make which can help to come to the right decision.
Sometimes the cost savings may not outweigh other things such as the additional protection or administrative ease.
How we can help
With over 30 years experience in guiding businesses in their journey are team are experienced in fully assessing the benefits of incorporation in line with your circumstances carefully considering any disadvantages.
We can then assist with the incorporation of the company and support with filing requirements and forward planning to drive your business success.
Our services
If you would like to find out more about some of our services that might help you please take a look at our related pages:
Blogs related to Incorporating your Business
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The content in this blog is correct as at 6th June 2024 See terms and conditions.
