'Why choose a registered company'

Why choose registered company over self-employment?

1) One of the key advantages of running a company is that you are more likely to pay less personal tax. This is due to the flexibility in the manner in which you can pay yourself as a shareholder i.e. you can pay yourself a traditional salary but you also have the option of dividends. At the moment, dividends for basic income earners are tax free due to the 10% tax credit they carry. However, this is likely to change in April when the government replaces the tax credit with a dividend allowance of £5000.

a. For agents/contracted workers, it means that you will be paid all the money you earn in full. You simply need to ensure you have an accountant that will help you with preparing and submitting company accounts.

b. It is important to note that dividends are taxed through corporation tax. Companies pay corporation tax on all profits earned i.e. dividends are paid from profits. Small companies pay a ‘small profits’ rate of 20%.

c. When you are self-employed, you can only pay yourself a salary and thus having less flexibility.

2) A company is seen as a separate entity i.e. it is separate from the owners. This provides great advantages e.g. the company’s performance and financial record is not linked to the owner. This also means that you benefit from what is called limited liability. Limited Liability simply means that the owner is protected by not being personally responsible for the company’s financial losses. However, this is assuming that no fraud has taken place.

a. This is one of the corner stones of owning a company because it creates opportunities that someone who is self-employed would simply not have the access to, especially for businesses that want to expand.

b. Someone that is self- employed is treated as a single entity for tax and administrative purposes.

c. As a result, someone who is self-employed simply cannot enjoy the same protection from financial claims if things go wrong.

3) Often funding can be extremely difficult to obtain, however, having a company makes it easier due to it being separate from the owners. In addition, companies allow you to have shared or co ownership which means you can sell part of the shares in order to generate investment/funding.

4) The professional image associated with companies means that people may take your business more seriously, especially in certain industries. For example, being referred to as a director or CEO can have a significant impact on how your clients or partners perceive you.

5) Once a company is registered with Companies House, your company name is protected by law. This means that no one else can trade under the same name. This effectively protects your brand.

a. When you are self-employed, it is possible for someone or another business to trade under the same name.

6) You can register a company for as little as £15. It is important to understand that it is much easier to prepare your own accounts when you are self-employed i.e. by submitting a tax return. Although it is more complex, there are many accountants across the UK that offer affordable and bespoke services to small companies.

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