When setting up your own business people are often unsure whether to register as Self-employed or as a Limited company. There is no right or wrong choice, but there may be better opinions for you based on the company you plan to set up.
Self-Employed
Being self-employed means that you have unlimited personal liability, you will be the single owner of a business (unless there is a partnership agreement). Owners would register themselves as self-employed through the government gateway and register for Class 2 National insurance. Self-assessments must be filed by the 31st January, these can be filed before this date but any tax and National Insurance due must be paid by the 31st January. This includes the 1st half of the on-account money due, with the remainder being due on the 31st July. Late submission of self-assessments and payments will result in fines and interest charges.
Tax Allowances are currently £12500, this means you can earn up to this amount without being taxed. National Insurance Class 4 allowance is £9569, this means you can earn up to this amount without paying any Class 4 National Insurance. The allowance for Class 2 National Insurance is £6515. Class 2 National insurance is taxed at £3.05 per week.
Advantages of being self employed
> You get 100% of your profits.
> It is easy to get started with your business.
> You make the decisions.
> Less admin involved.
> You can offer a personal touch to customers.
Disadvantages of being self employed
> You have unlimited liability
> You’re fully responsible for your business.
> You can only raise limited finance.
>There is a limited scope of expansion.
> You take on all liability.
Limited company
A limited company divides ownership between 1 or more people. Directors have a limited liability on their business, debt & losses. Most directors would be paid by PAYE, if a director takes drawings from the company, then a self-assessment must be completed.
Being a shareholder could mean you are entitled to a dividend if the company is making a profit after the tax liability has been met.
£0-£2000 dividends are tax free.
Dividends over £2000 will be taxed depending on your tax bracket.
Basis rate threshold 7.5%
Higher rate threshold 32.5%
Additional rate threshold 38.1%
Limited company profits are subject to corporation tax at 19%.
Advantages of a limited company.
> You can be more tax efficient.
> It is easier to leave the business.
> Losses & Debt are not personal.
> You are better perceived.
> You won’t be personally sued.
Disadvantages of a limited company.
> You must prepare annual accounts.
> There is more financial admin.
> You have less privacy.
> Taxation rules are more rigid.
> You have less input.
However you decide to run your business is up to you as the owner, but please be aware that whether you are self-employed or a limited company you must register for value added tax (VAT) if you are approaching £85,000 on turnover (Not Profit).
Please note, that all figures are correct at the time of writing
