I wanted to give anyone reading this blog an idea of the benefits and drawbacks of turning their sole-trader business into a limited company.

Why go limited?

Many clients I’ve spoken to in the past have been unaware of the significant tax advantages available to a limited company vs. being a Sole Trader. The main one is the substantially reduced national insurance bill as limited companies don’t pay class 4 NIC’s like sole traders currently do. There are also a few more obscure benefits such as being able to claim for certain training costs you wouldn’t have been able to as a sole trader and also the limited liability which means the buck stops at your business and not your family home if you end up with any problems such as being sued.

The tipping point

Limited companies are more complicated to run and as a result can cost more in terms of accountancy fees, generally the point where the national insurance saving off-sets the additional fees is at the point your profit reaches £25k per year, below that it’s a hassle that you can probably do without and over that then you will start to see substantial savings in your tax bill.

When not to go limited

Depending on where you are with your business then being a sole trader can have advantages over going ltd, the main one is that you can use the losses you make in the first few years to claim a tax rebate if you had another job prior to or alongside your business. This isn’t possible if you are a limited company as you would have to carry your losses forward to reduce your tax bill in a future year, having the rebate now or in a year’s time can make a huge difference when cash is tight.

This guide is a brief example of when company structure changes could benefit your business, please seek professional advice before making any major changes.

If you would like to discuss any of the issues covered above please contact us.

Nishi Patel