Time to go Limited?

Turning your business into a limited company has since the early eighties been an option that self-employed have tended to avoid.

The cost of having an audit, disadvantageous tax treatment and extra administration costs quite rightly put them off.

However, during the last few years the situation has changed. An audit is only required for companies with turnover in excess of £1,000,000 and administration costs are falling with the advancement of cheap software packages. Even Companies House have cut their prices. In addition, with the right advice an owner/director of a limited company will pay less tax than a similar self-employed trader. To achieve this their affairs will be a little more complicated, but the tax savings made should more than compensate for the costs of using a good accountant to guide you through it.

There are other advantages of course. Should the business go wrong the owner can only lose the money they have put into the business plus anything they have personally guaranteed. If self-employed, all of the trader's personal assets (including their home) are at risk. Some professionals and consultants prefer using a limited company because it acts as a deterrent against spurious compensation claims.

The Inland Revenue are continuing their crackdown though on so-called Personal Service Companies using the IR35 legislation. These are companies who generally have only one customer where the relationship is more that of employee and employer.

The rules will not affect genuine trading businesses with several customers. They should seriously consider taking advantage of 0% (that's right 0%) starting tax rate for small limited companies although it is important that they ask a qualified accountant to calculate the savings or costs that will arise. “Going Limited” used to mean limiting your liabilities in the event of a company failure. Nowadays, it could equally mean limiting your tax bills.

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