Do I need a limited company?

Kim Lee is the founder of Mawney Accountancy, an accountancy and tax practice based in Romford. She is a Chartered Management Accountant MiP and Taxation Technician and has over 20-years of experience working with a range of businesses, social enterprises, churches, landlords and private individuals. She is passionate about supporting people to develop systems that will help them grow their businesses and keep them HMRC compliant.  

Here she gives her advice on whether you should register your business as a limited company. 

Every business no matter how big or small must have a legal structure. Most choose to be either a sole trader or limited company. At the start of 2018 there were 5.7 million private sector businesses, 3.4 million were Sole Traders and 1.9 million were Limited Companies.

Having taken the decision to start your own business there are several things to consider to decide what is the best legal structure for you.

Often when I am asked about this, one of the reasons people give for wanting to trade as a limited company is limited liability. As a sole trader you are the business, if the business does well, any profits after you have paid your tax and National Insurance are yours, and if your business gets into trouble then you will be personally liable for the debts of your business and your personal assets may be at risk. When you incorporate a limited company, it is a separate legal entity to you; this means that any profits the business makes belong to the company, even if you are the sole shareholder and director. Any money you take out of the company will have to be in the form of salary, dividends or as a loan. If the company gets into trouble then in most cases your personal liability for the debts of the company will be limited to a fixed sum. You can find out more about registering a limited company on the Companies House website.

The paperwork and compliance as a sole trader are simpler, you need to submit a personal self-assessment tax return each year and will need to let HMRC know no later than 5 October after the end of the tax year in which you start trading that this is the case. Limited companies have to draft company accounts and submit them to Companies House annually, complete and submit a Company self-assessment tax return to HMRC and as a director if your income is above £50,000 or you have other taxable income you will also have to submit your own personal self-assessment tax return. You can inform HMRC about your company when you incorporate it. 

Unless you are planning to do your own accountancy and tax work then you can expect to pay higher accountancy fees for a limited company. If you do decide to draft your business accounts and/or do your own tax returns you will still need to know the rules. This may involve a lot of your time.

How others view your business can be a consideration too, who is your end Customer? Some companies will only deal with limited companies and there can be a perception that limited companies are more professional.

If this has left you with more questions, then speak to an accountant, they can advise you further and assist you to decide what is right for you. 

Useful links

Working for Yourself -

Register for and file your Self Assessment tax return -

Setting up a private limited company -

Companies House -

Kim was one of our successful clients who benefited from the Enterprise Steps programme.

Take the next steps with your business
Enterprise Steps has developed an innovative programme for London-based pre-start up, start-ups and established businesses to support them in growing to their full potential.

Find out more here, and about our latest workshops and events here.

The Enterprise Steps programme is part-funded by the European Regional Development Fund (ERDF).