The short version: A limited company is a separate legal entity from you. It has its own finances, its own tax affairs, and its own liabilities. If the company has debts, your personal assets are generally protected.
How is it different from being a sole trader?
As a sole trader, you and your business are legally the same thing. If the business owes money, you personally owe it. With a limited company, there’s a legal barrier between company debts and your personal finances (though directors can sometimes still be held liable in certain circumstances).
How are limited companies taxed?
The company pays Corporation Tax on its profits. If you take money out as salary, you pay Income Tax and National Insurance like any employee. If you take dividends, you pay dividend tax. Many directors use a combination to be tax efficient.
What are the admin requirements?
Limited companies have more paperwork. You need to register with Companies House, file annual accounts, submit a confirmation statement each year, and keep statutory records. There are deadlines and penalties for missing them.
Is it worth it?
Depends on your situation. The tax savings can be significant at certain income levels, but the admin burden is higher. It’s worth running the numbers.
Thinking about incorporating? Let’s talk about whether it makes sense for you.
