When is the right time to become a Limited Company?

When’s the right time to set up a Limited Company?

Are you setting up a new business or are you a long term sole trader thinking about changing the structure of your company to a Limited Company but unsure if the timing is right?

If you’re looking for income benefits and protection for your business read on to discover if forming a Limited Company is the right option for you.

Why set up as a Limited Company?

Some of the reasons business owners set up a Limited Company can be to: change the perception of the business; enhance flexibility for business growth; reduce personal risk; increase take home pay and reduce the level of tax you’re paying.

What are the Directors responsibilities?

As a Director of a Limited Company you run your company. It’s the shareholders that own it. In other words if you’re the Director you’re answerable to the Shareholders for your actions.

When you register your company it becomes a legal entity liable for its own debts, governed by the Company’s Act and you’re now taking on extra legal obligations.

You’re legally obliged to behave with integrity, put the needs of the company before your own and inform shareholders of your decisions that affect the company.

With all things related to business and accountancy you must keep robust records to remain compliant in the eyes of HMRC and Companies House and your Company Accounts will be made public.

Finally, and no less important, the Director must complete Annual Returns and register for Self-Assessment and complete Self-Assessment returns and submit Payments on Account.

Sounds daunting but with the right support your business will thrive.

If you’re already registered as Self Employed you should read our Payment on Accounts blog as the next HMRC deadline is just around the corner – 31st of July.

What impact does forming a Limited Company have on tax?

A Limited Company is a tax efficient option for business owners. You’ll only pay tax on the money you take out of the Company in the form of salary and dividends. The rest can remain in the company until required. Another advantage is you can also appoint family members and friends as Directors.

There’s no doubt that with a top tax rate of only 20% and the ability to only be taxed on what you draw rather than the profit, as happens to the self-employed, using a limited company is a very attractive medium to do business through.

Throw on top of that the ability to draw up to £40K pa with no personal tax bill (depending on the split of drawings) and the company is a sure fire winner.”

What level of risk is there running a Limited Company?

An equally attractive prospect is that it lowers your personal financial risk. The main reason being your personal assets such as your home remain separate from the company debts.

What impact does a Limited Company have on Business Growth?

For a business that’s already experiencing steady to rapid growth and a steady profit exceeding £45,000 I would say forming a Limited Company is likely to accelerate business growth further.


Successful Limited Companies can attract even bigger investors, apply for bank loans more easily and easily add on new staff to your existing PAYE system.

You can attract lucrative clients too. As I touched upon at the start the types of clients you’re targeting can shape your decision. For example big financial institutions may only deal with Limited Companies. If you’re working on high risk projects, such as for a large IT company, your level of protection is higher too.

Finally, there’s an added level of Company stability. If another Director chooses to leave or dies the business is protected and carries on, again making you a more solid investment.

Limited Company beginning to look like the right option for you?

You must be aware with everything there are disadvantages to consider. Admin costs increase, associated responsibilities of being a director increase and processing an IR35 and self-assessment returns are time consuming and stressful. Seeking professional expert advice will provide the support you need.

How Murrison and Wilson help businesses grow?

We take pride in nurturing our clients’ businesses and this puts us in the unique position to advise business owners on the right decisions to secure future growth.

Going forward we’ll find the most tax efficient ways to manage your business and take care of the admin burden for you.

You can be confident we’re saving you time and you won’t miss HMRC and Company House deadlines.

If you’re thinking about setting up or converting to a Limited Company or looking for extra business support for your Limited Company call Simon Murrison on 0141 290 0262 or email simon@muwca.co.uk or connect via LinkedIn or Twitter.