There are many benefits of a limited company trading in the UK. So, if you are looking for a better option to expand your business, this is your guide as we will talk about the benefits of a limited company. Many sole traders in the UK look for other options when business activities are increased, and they need a new structure to carry out the new business expansion. So, let us dive in further to gather the benefits of a limited company in the UK.
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What are the Benefits of a Limited Company?
Out of several benefits of a limited company, we have explained the prominent ones in this section.
1- Status of a Dormant Company
One of the benefits is that if you are a limited company and not trading actively, you can avail the status of a dormant company. Dormant company status can provide several benefits for limited companies in the UK. Dormant companies are exempt from filing annual accounts and confirmation statements with Companies House, reducing the administrative burden. They are not required to pay annual fees to Companies House, resulting in lower costs. Dormant company status ensures that the company name is protected, preventing other companies from registering the same name.
To apply for dormant company status, limited companies must notify Companies House of their intention to become dormant. Companies must meet the eligibility criteria, including having no trading activity, no income, and no assets. Also, pay the filing fee for dormant company accounts.
2- Tax-efficiency for the Company Directors
Tax efficiency for directors is a crucial aspect of managing a limited company in the UK. By employing tax efficiency strategies, directors can minimise their tax liability, increase their take-home pay, and improve their overall financial well-being. By seeking professional advice and implementing effective tax planning strategies, limited companies can achieve tax efficiency for their directors.
To achieve tax efficiency, company directors can consider tax planning strategies. Make pension contributions to reduce taxable profits and increase tax relief. Claim R&D tax relief on qualifying expenditures, such as research and development projects, to reduce taxable profits.
3- Opportunities of Tax Planning
Tax planning refers to the process of analysing and optimising a company’s tax position to minimise tax liabilities. Tax planning offers numerous benefits for limited companies in the UK. Tax planning can help reduce tax liabilities, increasing after-tax profits and cash flow.
Claim corporation tax relief on qualifying expenditures, such as research and development projects, to reduce taxable profits. Claim capital allowances on business assets, such as equipment, vehicles, or property, to reduce taxable profits. Register for VAT to reclaim VAT on business expenses and reduce VAT liabilities. Implement a payroll-giving scheme to reduce taxable profits and increase tax relief.
To take advantage of tax planning opportunities, limited companies can consider strategies like optimising the extraction of profits from the company, using a combination of salary, dividends, and other forms of remuneration. Claim tax relief on business expenses, such as travel, entertainment, and training costs. Implement tax-efficient investment strategies, such as investing in tax-efficient investments like ISAs or pensions.
4- Pension Contribution Tax Relief
The tax relief is available on both employer and employee contributions, making it an attractive benefit for limited companies and their employees. Tax relief for pension contributions offers numerous benefits for limited companies and employees. It is for pension contributions that can help reduce tax liabilities for both the employer and the employee.
Tax relief for pension contributions can encourage employees to contribute more to their pension scheme, increasing their pension savings and retirement income. Tax relief for pension contributions can be used to provide improved employee benefits, such as enhanced pension contributions or additional benefits, such as life insurance or income protection.
5- Protecting Company Name
Forming a limited company in the UK provides automatic protection for your company name. When you register your company with Companies House, your company name is entered into the public register, and no other company can register the same name. Limited company formation ensures that your company name is exclusive to your business and no other company can use it. If someone tries to use your company name, you can take legal action against them, and the courts will recognise your rights to the name.
6- Splitting Income
For limited companies in the UK, splitting income involves distributing profits to shareholders in the form of dividends. Shareholders receive dividends, which are taxed at a lower rate than income tax. Each shareholder has a tax-free dividend allowance. By splitting income among multiple shareholders, each individual’s tax liability is reduced, as they only pay tax on their share of the dividends.
Are you looking for professional tech-savvy tax advisors and accountants in the UK to guide you? Contact us now!
The Bottom Line
In conclusion, there is no doubt that there are several benefits of a limited company in the UK. Especially when you are trading in the capacity of a sole trader and the business activities need an expansion. This will even allow you to protect your business assets as you are not the business entity on your own after setting up a limited company. In case you have decided to set up your limited company, you can reach out to one of our professionals to get relevant advice.
Disclaimer: The information about the benefits of a limited company is provided in this article including text and graphics. It does not intend to disregard any of the professional advice.
