Why I Chose to go Limited
Gemma Church is ‘the freelance writer who gets tech’. A web development contractor and journalist, blogger and writer for the science and technology sectors. www.gemmakatechurch.com
When I first set up as a freelance writer, while still working full time as a web developer, I operated as a sole trader.
However, after a few months I decided to operate under a dormant limited company to stop someone else registering a company in my chosen trading name. The dormant company status protected my business name although I did not have to complete any of the paperwork associated with a fully fledged limited company, just yet.
Once I left permanent employment and began to work as a contractor, I decided it was time to reassess my situation. I started to research the best way to operate and realised there are many disadvantages to other ways of operating. For example if I were to operate as a sole trader and my business were to run into trouble, I would bear all legal and financial responsibility. I was also looking into buying a house at the time and working as a sole trader I discovered many lenders would not include my freelance earnings as part of my proof of income.
Because of this I chose to set up as a limited company. There is the option to work through an umbrella company, but for me, this would be a more expensive and less professional way of working compared to operating as a limited company. Here are a few other reasons why I chose to go limited:
As a shareholder and director of my limited company, I can elect to take the majority of my income in the form of dividends. This allows me to manage my own tax liability and can also offer savings in National Insurance costs.
I can also claim for a wider range of expenses, from computer costs to a fixed monthly expense for using my home as an office. I also have a young family and can claim for childcare costs, up to a certain value. It all adds up to boost my take home pay quite considerably.
Flat rate VAT scheme
I operate under the flat rate VAT scheme. This means I keep the difference between what I charge my customers and pay to HMRC. It may mean that I can’t reclaim VAT on my purchases but my outgoings are far lower than my incomings, so it’s a great way to save some money. And, don’t forget, some of those outgoings can be recorded as expenses to offer further tax savings.
Because of the structure and separation between me and my limited company, I am protected from threat of personal financial losses made by the company.
I also have complete control of my financial affairs, which means I do not have to risk my money with any third party administrator. This helps me sleep a little better at night - I still have a mortgage to pay and a family to support, so this limited liability is a huge benefit.
I find clients view a limited company in a more positive light. A limited company is also seen as a more permanent and professional set up in the contractor and self employment space. I’ve even worked with a couple of larger companies that will not deal with sole traders or partnerships.
As the sole shareholder of my business, I own it. And, as I operate as a limited company, I can transfer the ownership of shares should I decide to pass on my business to another person. This is highly unlikely in the near future but still an important point to future proof my business and its brand.
A final note on admin…
Operating as a limited company means you must file company accounts and VAT returns, pay Corporation Tax, National Insurance and PAYE obligations, alongside a range of other tax and legislative requirements, depending on the nature of your business.
Being the director of a limited company carries considerable responsibility. It’s a confusing and ever-changing landscape that I would not be able to navigate without the help of a specialist accountant.
If you would like to investigate the best way to run your business, contact one of the team at Nixon Williams today on 01253 362062 or email firstname.lastname@example.org for more information.