Posted January 17, 2020

Should I set up a limited company?

Whitesides Accountant & Tax Advisor Sarah Greenwood answers the question “Should I set up a limited company?”

This is a question that we get asked all the time and it’s something that really depends on each individual businesses’ circumstances.

The main things that I would consider is what you’re intending to do long term and how you think the business is going to perform. If it’s got a lot of setup costs and the likelihood is you might make a loss in the first year, I would consider setting up as a sole trader, because you can claim an early year’s loss relief and carry that back against the previous three years income, which would allow you potentially, if you’re a higher rate taxpayer, to recover tax at 40%. Whereas, as a limited company, you can only carry that forward and use it against trading income from the same trade, so you’re getting instant tax relief at 40% rather than future tax relief for 19%, the rate of corporation tax.

One of the other things that I would consider is perhaps whether you want the limited liability of a limited company. People think that’s really important but actually, you need to consider what your creditors are going to be if the company does fail, and often if you’ve got a lease or you’ve got a bank overdraft you’ll have personally guaranteed those anyway and so perhaps if they’re going to be your main creditors the limited liability isn’t as important as you might think it is.

A lot of people though, do like having limited companies because of the sort of kudos around running a limited company and people think it’s a slightly bigger business because it’s a limited company rather than a sole trader business.

We hope this has helped answer the question should I set up a limited company, if you require any further advice please get in touch.