Is it time to set your freelance business up as a limited company?

If you’re enjoying the freedom of freelancing and wondering if it’s time to level up, setting up a limited company might be just what you need to open up new opportunities and enjoy extra benefits.

Let’s take a look at a few things you should consider before making your decision.

Potential tax-savings

When you incorporate your business, you open the doors to various tax savings including:

• Corporation Tax is only 19 per cent on profits up to £50,000. That’s much lower than personal income tax rates, which can be as high as 45 per cent for those earning over £125,140.
• By using dividends and other tax-efficient strategies, you could save a lot on your tax bill, as dividends are taxed at a lower rate (basic rate of 8.75 per cent) compared to salaries.
• You can also take advantage of tax-free allowances and claim capital allowances on business assets like machinery, which can further reduce your Corporation Tax.

Get peace of mind

Operating as a limited company means your personal assets are generally safe from business debts and legal issues, as creditors can’t usually go after your personal finances if things go south.

Your company is its own legal entity, so your personal wealth stays protected from business-related risks.

Improve your reputation

Clients often see limited companies as more established and trustworthy. This can be a big plus in competitive fields.

Larger clients tend to prefer dealing with limited companies, which could lead to bigger contracts and exciting new projects.

Enjoy financial flexibility

As a director, you can make pension contributions that are tax-deductible, helping reduce your company’s taxable profit and building up your retirement savings.

Limited companies can claim a broader range of expenses, from travel to marketing to business-related insurance costs, which can help with better cash flow and savings.

Support your growth ambitions

A limited company structure can make it easier to bring in investors and raise capital, which is essential if you’re looking to expand.

Incorporation allows for flexible ownership, so you can add partners or investors without impacting your personal liability, which can be crucial for growing your business.

Things to keep in mind

Incorporating your business clearly has many benefits, but as with all important decisions, you should take any potential challenges into consideration.

This can include:

• More admin work – Running a limited company does come with some extra paperwork, like filing annual accounts and tax returns as required by Companies House. This can be time-consuming, and you might need professional help.
• Incorporation costs – Setting up and maintaining a limited company involves costs, which might be something to consider if you’re just starting out.

Speak to the professionals

Speaking to an accountant can give you the guidance you need to successfully manage the process of setting up a limited company and ensure you are making the right choices for your business.

If you would like advice and support on incorporating your freelance business, please get in touch.