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Self-Employed vs Limited Companies

The main reason for deciding whether to be self-employed or incorporate a limited company should be a commercial one. Where there are several individuals involved consideration should also be given to the underlying agreement between each other.

At an early stage of your business it generally makes sense to keep things simple and work as self—employed. As the business grows you may want to think about a limited company. However, the nature of your business, even at an early stage, may well dictate what arrangement to put in place.

But what are the advantages of working as self-employed as opposed to a limited company?

Advantages of being self—employed

  • Simple accounting.
  • Only required to prepare a Tax Return once a year to HMRC.
  • Less expensive to run.
  • Flexible working arrangements.
  • Not responsible for deciding the employment status.

Disadvantages of being self-employed

  • National Insurance charged on net profits.
  • Personally liable.

Advantages of a Limited Company

  • A separate legal entity from its owners.
  • Liability of the company owners limited to the value of the shares (Normally nil as the shares are generally fully paid)
  • No National Insurance due on the payment of dividends hence more tax efficient.
  • A more attractive corporate identity (especially to banks and clients)
  • More suitable if individuals needs to be employed by the business.

Disadvantages of a Limited Company

  • More expensive to run.
  • More complex legal and reporting requirements.
  • Accounts must be filed at Companies House and published.
  • IR35 may apply (This is a piece of legislation intended to stop individuals from forming a limited company for the sole purpose of getting a tax advantage). Where IR35 applies additional tax liabilities become due.

How can Best Choice Accountancy help?

We can assist you in helping you to make the right decision as to whether you should be self-employed or form a Limited Company. We can discuss the advantages and disadvantages of both arrangements as described above in a more detailed and personalized manner.

Next Step:

Please contact us if you need further advice, have any questions about our services, or would like a free consultation or a fixed quote.

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