Starting your business part 4

Limited Companies

One of the key questions to deal with is whether or not to set up a limited company. As with many things there are pros and cons with this.

One of the major arguments at the moment with falling corporation tax rates is that it is better to have a ltd company, but it really does depend on a number of factors so you ought to seek advice in general some of these are:

  1. Losses. Should you make losses in the earlier years with a Ltd company these losses cannot be offset against your earlier employed income see part 2 and so a much needed tax refund maybe missed.
  2. Low Profits. If your earlier year profits are likely to be less than £20,000 (per partner) then it is likely that a Ltd company will be more expensive this is because of the personal allowance effect.
  3. Company car.  Generally if the car is in the company then this makes a Ltd company more expensive. In most circumstances the best option is to have the car as private and charge the company the HMRC mileage rates for business miles. However it may depend on the cost of the car, the CO2 emissions and how it is being paid for.
  4. Additional admin. With a Ltd company there are some set up costs and an annual return to submit and this is an additional cost it is also an additional thing to remember to do. There is a £150 penalty for late submission.
  5. Borrowing.  One of the advantages of a Ltd company is simply, the limited liability. Should it be necessary to borrow money and this can be done without giving personal guarantees then a Ltd company offers good protection. Also should the business have a high degree of risk then a Ltd company may offer a safe haven. Be warned though this is not an excuse to be reckless!!

Having decided to set up your company this is actually quite straight forward and can be done on Companies House websitebe sure to keep your login details.

Finding a company name that fits your business is quite important, but not as important as your trading identity and your domain name. The Ltd company can be something quite different, however in the first instance play it safe and try and get your brand/domain and company name to be more or less the same.

In the next blog we’ll look at starting to trade……

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