The main advantage of running your business as a limited company is that you are likely to pay less personal tax than a sole trader.
As a sole trader, your entire income is subject to NIC rules.
Running your business as a limited company could therefore help you to take home more of your earnings.
Is it better to be a sole trader or a limited company?
Another very prominent advantage a limited company has over sole traders is that operating your business through a limited company is more tax efficient. Whereas a sole trader will have to pay tax on all of the profits that are above their personal tax allowance (£11, 850 for the tax year 2018/19).
Do I need a limited company?
Because limited companies are registered at Companies House, they must pay corporation tax. Sole traders must fill out a self-assessment tax return and register as self-employed with HMRC, but as a general rule their tax obligations are much less complex than those of a limited company.
What are the benefits of a Ltd company?
Sole traders and partners in a partnership pay income tax while companies pay corporation tax. While corporation tax rates are lower than income tax rates the advantage may lie with incorporation. As well as salary payments to employees, a company can also pay dividends to its shareholders.
Is it more tax efficient to be a limited company?
Broadly speaking, limited companies stand to be more tax efficient than sole traders, as rather than paying Income Tax they pay Corporation Tax on their profits. In addition to this, there’s a wider range of allowances and tax-deductible costs that a limited company can claim against its profits.
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