Benefits of a Limited Company

The Benefits of Being a Limited Company: Boosting Tax Efficiency for Freelancers and Subcontractors

As a freelancer or subcontractor, deciding on the right business structure is one of the most critical decisions you'll make. If you're considering going Limited, you're in the right place. We're here to break down, in clear, straightforward language, the tax efficiency benefits that a Limited Company can offer.

Profit Extraction: More Control, More Savings

Limited Companies can extract profits as a combination of salary and dividends. Why does this matter? Dividends are taxed at a lower rate than salary and aren't subject to National Insurance contributions. This approach can save you money compared to taking all income as salary, as you might in a sole trader setup.

Claimable Expenses: Reduce Your Taxable Profit

Operating as a Limited Company allows you to claim a wider range of business expenses. From office supplies to travel costs, every penny you can claim as a business expense reduces your taxable profit, helping you hold onto more of your hard-earned money.

Pension Contributions: A Smart, Tax-Efficient Move

Limited Companies can make pre-tax contributions to pension schemes. This not only helps you secure your future but also decreases your company’s taxable profit, leading to lower corporation tax. In contrast, sole traders make pension contributions from their taxed income.

Family Matters: Boosting Tax Efficiency through Family Involvement

A distinct advantage of operating as a Limited Company is the potential for greater tax efficiency through family involvement. By employing a spouse or adult family members and paying them a salary for the work they do, you can distribute income and utilise personal allowances to reduce overall tax liabilities. It's essential, however, that the salary paid is justifiable for the work performed to avoid any issues with HMRC.

VAT Flat Rate Scheme: Simplify and Save

Limited Companies that qualify can benefit from the VAT Flat Rate Scheme. This simplifies your VAT reporting and can often lead to savings, particularly for service-oriented businesses with few VAT-chargeable expenses.

Better Perception and Opportunities

Though not directly a tax benefit, it's worth noting that operating as a Limited Company can enhance your professional image. Some organisations prefer or even require working with Limited Companies due to their perceived stability and commitment. This could open up more lucrative opportunities for you.

The Right Support for Your Journey

While going Limited can provide substantial tax efficiency benefits, it also comes with more responsibilities. Partnering with a knowledgeable accountant who specializes in supporting freelancers and subcontractors can ensure you maximize these benefits while staying compliant with all legal requirements.