What are the positives of trading through a Limited Company?

Podcast transcription with introduction removed

In these first couple of episodes, I’m focusing on that very initial question, should you be self-employed or should you set up a limited company and trade through that, so in the first episode, we went through what the differences were between those two set-ups, and in the second episode, I went through the three main things that you must consider before you make a decision. Now, in the last episode and this one, I’ve been going through some of the pros and positives of being self-employed and trading through a limited company.

These are only to back up the points that I went through in episode two, so if you haven’t listened to that one, please go through and spend time just listening to that one first, and then if you listen to the three points and you’re still a little bit unsure, then listen to the last episode and this one, and then hopefully between these three episodes, I’ll be able to help you to make a confident decision of what one you should be.

Separating your business from youself

The first pro or positive of trading through a limited company is that business separation. So much of running a business and your success depends upon mindset, and I know that sounds a little bit woo and something that maybe a coach or someone would say to you, but it really does. You’ll find quite often with freelancers, there can be a trend where we sort of put our business down and refer to it as a bit of a side business or a hobby. Having a limited company means that you need to separate it, so your business does have its own bank account. It does have to file its own accounts.

And it can just make it feel maybe that little bit more important and a little bit more separate to yourself, and that for some people can really help with their mindset with their business. I’ve put that down as the first thing, because we can often overlook that, but it can be quite powerful in terms of the success of our business.

You can control what you earn

The second thing is because it’s separate to you, you can control what you earn from it, so unlike being self-employed, profit from the limited company is not added to any employment income that you might have, so if you are running your business as a bit of a side hustle, it’s going to be too small for the first couple of years to be able to be your sole income. If your employment income is 40, 45, pretty close to the higher rate threshold, you may not want to pay tax on all of the profit that your business makes, because there’s probably nothing worse than making say ten thousand pounds’ profit, only to be immediately in the 40 rate tax band and have to hand that over to HMRC.

So, with that separation, it means that obviously the profits will be subject to corporation tax, but that’s lower than the personal tax and national insurance bands, and you can then control what you personally earn, so you can possibly engineer it so you don’t go over the higher rate band or the higher earner threshold.

Gives your business space to grow

The final thing, it gives your business time to grow. I went through it in episode two when I said about the three things to consider when it becomes tax efficient to become a limited company, and sometimes, if you believe that your business is going to grow quickly, or maybe there is always a chance of a jump of income, if you’re self-employed, you’re always going to be keeping an eye on when is it tax efficient, and when do you need to make that jump, and going through the process of moving your business from one to another.

If you’re a limited company, it’s done for you. You’re already sort of future proofed, you’re already tax efficient, providing your profits go over the figures that I talk about in episode two. That’s kind of the main things. I make it sounds like there’s not actually that many positives around being a limited company, but it’s a little bit more future proof if you’re expecting to grow. It’s very positive sometimes from a mindset point of view, and it gives you that control over your personal income as well.


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