What is it and how it operates?
A limited company is an independent and separate legal entity that can own assets in its own right and is responsible for its liabilities and expenses. In a limited company business structure even if you own 100% of the share capital your finances are completely separate from the company. Any liabilities arising from the business that the company cannot meet, will not warrant sale of your personal assets to the shareholder. If you want to run your business or start contracting under limited company structure you will be the director and sole shareholder of the company. The company can then pay you an annual salary or dividends or both. As a director, you will be an employee of the company therefore both the company and you have to pay tax and NI on your salary.
The advantages of limited company business structure are;
1- it is generally accepted throughout the accounting and tax sector that it is the most tax efficient way to run a business or contracting. It is estimated that your take home money is around 80% of the profit.
2- low personal financial risk as explained above your personal assets are safe when your company is struggling to meet it’s liabilities.
3- wider tax planning opportunity through schemes like flat rate VAT.
4- you will be able to claim a more wider range of expenses as long as they meet the ‘wholly and exclusively for business’ criteria.
5- limited company gives your business a professional appearance so it attracts more business.
The disadvantages of limited company business structure are;
1- Accountancy fee is higher as limited company involves more paperwork,accounting procedures are complex for producing limited company accounts and you have to satisfy HMRC along with companies house with up to date information.
2- your details will be published on companies house website as a director.This means you will have less privacy
3- more administrative responsibilities with regard to record keeping e.g maintaining an asset register which is not required under other business structures such as sole trader.