If you’re thinking of setting up a company, you’ll need to choose a company name and register the company with Companies House before you start trading. As a Director of a Limited Company, you’ll have a number of statutory and legal responsibilities, including filing annual returns with Companies House and notifying them of any changes in officers, registered office and share allocations. You’re also bound by the general duties of a Director, as defined by the Companies Act 2006. It’s worth bearing in mind that there are likely to be additional compliance costs for dealing with both Companies House filings and for dealing with HMRC.
A company is a completely separate legal entity and you therefore have limited liability by trading through a company. This ensures that your personal assets are kept separate from the company’s assets and you should be protected if things go wrong.
A limited company will pay tax on profits (currently at 19%). To withdraw money from the company you can either draw a salary/dividends, which will be taxed on you personally. There is flexibility for tax planning as dividends can be delayed until a later tax year in order to use your allowances and rate bands in the most tax efficient way.
A company can offer you more flexibility by either bringing in outside investors through share purchases or subscriptions, or for tax planning within the family, whether by employing family members or issuing them with different classes of shares. Also, the use of a company may help to present a more professional image for your business and, when it comes time to sell the whole or part of your business, the process is likely to appear cleaner and more attractive to an investor than an unincorporated business.