‘Dear Danbro, Should I Incorporate My Business?’

From our very own sole trading clients, to those who are just starting out in business, here at Danbro we’re often asked about the benefits of incorporating a business into a limited company.

Whilst incorporation can have advantages for contractors, freelancers and small business owners, it doesn’t necessarily suit everyone. So, should you incorporate your business and what do you stand to gain from doing so?


To make sure we’re all on the same page; here’s what it means to incorporate your business

Incorporating a business is a process by which a new or existing business registers as a limited company (a legal entity with a distinct identity from those who run or own it). Limited liability companies make up the vast majority of UK companies.

First of all, as a director of a limited company, there are certain obligations to fulfil each year. This includes filing documentation including the annual accounts and confirmation statement. Directors must also inform Companies House about any changes to the business, such as the appointment or resignation of another director.

Incorporation is not compulsory and for many, sole proprietorship works perfectly fine. But in order to bring in co-ownership for instance, a business does need to be incorporated.

Before you decide whether or not to incorporate your company, it’s a good idea to speak to an accountant to determine if it’s the best way for you and your business moving forward.

To spare you the rigmarole, Danbro can take care of all this for you – after all, it’s what we do best. For information on setting up your own business and the differences between sole traders and limited companies, click here, or call our dedicated team today on 01253 600 150.


DID YOU KNOW? … Limited companies pay Corporation Tax on the business’ profits in the year earned and, at present, company tax rates are proportionally lower than Income Tax rates.



So, what are the potential advantages and disadvantages of incorporating your business?



PROs



FINANCIAL PROTECTION:

By incorporating and separating things like records and accounts, there’ll be a greater distinction between your business and your personal life, insulating your personal finances from that of the business. This can limit liability and help with things like tax. Incorporation also enhances the protection over your personal assets and credit rating, in the unfortunate event that your company is sued or falls into financial trouble.


PENSIONS & FUNDING:

Obtaining funding can be a struggle for many sole traders and small businesses. Furthermore, if your company becomes a separate entity to yourself, it may make things a little easier in this regard. On a personal level, as a ‘company employee’, you can be provided with a pension as a tax-deductible expense. This would give you a tax advantage over sole traders.


SUCCESSION PLANNING:

Transferring the ownership of a business is much easier if you’re a shareholder. So, if you come to retire, decide to sell on, or even in the event of your passing, succession is a more straightforward process than it would be for a non-registered business.


NEW OPPORTUNITIES:

As a sole trader, you are the business. You’re the owner, the management and the staff all rolled into one. If you incorporate your business, you’ll become a shareholder in a separate legal entity, serving the company as a director. Being the director, you can decide when profits are distributed, potentially allowing you to gain certain tax advantages. Plus, it won’t hurt your self-image to become a director (and shareholder) of a successful business.


CONs



GREATER ACCOUNTABILITY:

Companies House determines certain legal responsibilities that you’ll take on as the director of a limited company. Likewise, failure to comply can result in financial penalties, disqualification, or even criminal prosecutions.


HIGHER FEES:

If you do incorporate your business, you should expect to pay more in accountancy fees than as a sole trader. However, this additional expenditure can often be outweighed by potential tax savings. Get in touch with Danbro today to find out more.


LESS DISCRETION:

Whilst there are no legal requirements for sole traders to publish business information, details about your limited company – including the financial accounts – will be floated in the public domain. Third parties can easily access and download documents filed at Companies House.  If you’re concerned about publicising your home address, you should be able to use the address of your accountant as your registered office address.


MORE OBLIGATIONS:

As the director of a limited company, you’re also obliged to prepare and submit annual accounts to Companies House which meet the criteria stipulated in the Companies Act of 2006. A company tax return, along with your financial accounts, must also be filed online with HMRC.


What to do next?

Deciding whether to incorporate your business or not involves a myriad of factors. So, we’d always advise you to speak to an accountant to see what’s best for you. You can download our free incorporation guide today to find out more.


Finally, to discover how Danbro can help you incorporate your business, or for professional advice on determining the best solution for you, get in touch with our expert team now or call us on 01253 600 150.


We’ll understand, we’ll deliver, and we’ll grow together.

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