With the current state from the economy, more and more people are finding themselves out of work or suddenly on less money as they are forced to work a shorter week to cope with shrinking company budgets. A large number of these people have taken the plunge and started their organization.
Starting your own business has quite a few advantages and appealing factors for most people, not least of which is the freedom of being your boss, choosing your working hours and deciding how issues should be done. That’s not to imply that starting your own business won’t involve a great deal of hard work, because it will, but the rewards generally far outweigh the downsides.
A great number of people start up a new company as a sole trader, becoming self-employed and registering as such with the HMRC. Unaware of the advantages a business formation would hold as an alternative.
The Advantages of Firm Formation
The several advantages to forming a limited company, instead of running a company as a sole trader which not everyone is aware of.
Sole traders, registered as self-employed are expected to complete a self-assessment each year. Due to the nature of the business enterprise, they will be expected to pay personal tax on the profits the organization made. If the enterprise is successful, this can mean that the rates of tax can become quite high. On the other hand, carrying out a firm formation and creating a limited firm would allow a business enterprise owner to pay themselves using dividends, which are subject to a lower tax threshold. This means that organizers can make more funds and give less to the taxman when running a limited company. It is not avoiding tax, but simply taking advantage of the limited enterprise model.