10 Key Advantages To Have Private Limited Company (LTD)

10 Key Advantages To Have Private Limited Company (LTD)
I will speak about two most popular types of business structures in the UK: sole trader (ST) and private limited company (LTD).
Starting up as a sole trader is without doubt the simplest way to start a business in the UK. All you need to do is inform HMRC that you are working as self-employed, and report your business activities through the annual self assessment tax return.
Setting up business as a LTD involves a more complex formation process, and the financial and administrative responsibilities of running a LTD are greater than those of a ST.
However, there are many benefits which LTD has over the ST. Here are 10 key advantages you should bear in mind when deciding what business structure to use for your venture.

1. Tax

The main advantage of running your business as a LTD is that you are likely to pay less personal tax than a ST.
If you are a director and shareholder of a LTD, you may choose to take a small salary and draw most of your income as dividends, which enables you to manage your own tax liability and potentially save on National Insurance costs.
LTD profits are subject to Corporation Tax, which is 19% from April 2017. The Government has stated it’s intention to cut Corporation Tax to 17% by 2020.
As a ST, you usually pay Income Tax and NIC, depending on your profit.

2. Business expenses

There are some expenses which can be claimed only by a company which of course will minimise corporation tax. For example:
  • As a company director you can have a salary.
  • The company obtains full capital allowances on cars, irrespective of any private use by employees.
  • Many different benefits can be provided free of tax, for example if a mobile phone contract is in the company’s name, it can be provided to employee
  • As a director you may set up an agreement between you and your company to rent an office (or other space) in your home.
As a self-employed you can only claim allowable expenses and you need to identify a proportion of an expense that relates to the business.

3. Pension

A LTD can fund its employees’ pensions as a business expense. This can offer a tax advantage over those who are running their business as ST.
A ST can only have Personal Pension.

4. Distinct entity

A LTD is a legal entity in its own right. This means that everything from the company bank account to the ownership of assets relates to the business. They are totally separate from the interest of the directors and shareholders.
A ST business is treated as a single entity for tax and administrative purposes.

5. Limited liability

In simple terms, if you run a LTD you are protected should things go wrong. Assuming all rules have been followed, as a director you will not be personally liable for any financial losses made by your business.
Those running a business as ST do not enjoy such protection from financial claims if things go wrong with their business. They are personally responsible for any losses their business makes.

6. Professionalism

If you plan to do business with larger companies, it can help if you are working via a LTD as it gives off a more professional image. In some industries, it may even be a mandatory requirement as they will not deal with ST.

7. Funding

Funding can be difficult for all types of businesses. However as a LTD is a distinct entity from its owners it may be a little easier for a company to secure business finance than it is for their ST counterparts.

8. Protection

Once you have registered your company, your company name is protected by law. Companies House has very stringent rules for the naming of companies so no one else can use the same name as you, or anything deemed too similar.
If you are ST, it’s possible that someone else could trade under the same name as you and you couldn’t do anything about it unless you registered a trade mark.

9. Shareholders

As the sole shareholder in your business, you own the business. However, a LTD can issue various classes of shares. This means you can easily sell or transfer ownership of shares.

10. Succession

If a shareholder wishes to retire, sell his shareholding or dies, it is far easier to transfer ownership of a LTD than a non-registered business structure. When you die the company lives on: it is a separate legal entity.

 

Choose the right business structure with our business consultant, if you are not sure which business model works the best for you.

 

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About Diana Hurta

Founder / CEO at DH Accounts & Legal Ltd.

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