Questions our Chartered Accountants receive from clients in the Southampton area often concern the differences between trading as a Limited Company, and trading as self-employed; these questions come from all sorts of different parties, from those who’ve just begun trading on their own, to those considering growth after a number of years in their respective industry. So what better topic for our latest blog post?
For tailored advice regarding your business – on anything from tax, to payroll management or available loans – don’t hesitate to contact Southampton’s favoured Chartered Accountants, Roger Smallman & Co. Ltd. You can reach us on 023 8022 2215.
The most obvious difference is that a Limited Company is a distinct and separate legal entity, therefore must be established before going any further. If you go the self-employed route, you simply declare it to HMRC before October 5 of the following tax year. It’s worth noting, as we’ve received many queries from individuals around Southampton looking to monetise hobbies and generate alternative forms of small income, if your total sales are below £1,000 over the course of the tax year, you do not need to register!
When it comes to expenses, little is different between Limited Companies and being self employed; businesses expenses are simply business expenses. Items that are used both for business purposes, and provide personal/general utility, such as mobile phone and vehicle expenditure, do vary slightly however; being self-employed, you’re treated as a business owner, while as a Director of a Limited Company, you are technically an employee. This means to claim on petrol use you’ll have to, for example, declare a vehicle a company car, resulting in additional national insurance costs. If this is beginning to sound a bit too complicated – know that our Southampton based Chartered Accountants can provide assistance in the flesh, over the phone or simply handle these concerns on your behalf.
Obviously, contractors, clients and the like will be dealing with the Limited Company rather than directly with you should you establish a venture. Consequently, contracts need to be addressed appropriately. If making the transition from self-employed to Limited Company, also consider insurance and similar items, like loans – personal insurance/loans will obviously not by default cover your business and vice versa.
While self-employed persons solely deal with HMRC, Limited Companies also worth with Companies House, who require up-to-date information on your company’s financial situation, as well as directors/shareholders. As Southampton’s trusted Chartered Accountants, we can assist in ensuring all parties receive accurate returns and information, giving you peace of mind that all obligations are met and expenditure is not in excess of what you should be paying; however, many chose to go it alone and this is a valid option.
When it comes to tax, self-employed persons submit by 31 January after the end of the tax year. Limited Companies require more work, with accounts sent to both HMRC and Companies House within 9 months of the end of their financial year. Limited Companies are also subject to corporation tax (something our Chartered Accountants handle for many Southampton businesses).
Other things to consider include how you expect to get paid, VAT registration and plans for employment, all of which become slightly more complicated with Limited Companies. But the benefits that this route offer can often outweigh the added complexity, such as: tax efficiency, professional status, pension options, and maximisation of tax-free income.