"Should I go limited?" is one of the questions we're asked most often. The answer depends on your income, your circumstances, and your plans — but for many self-employed people and growing businesses, incorporation is one of the most impactful financial decisions they can make.
What is a private limited company?
A private limited company (Ltd) is a separate legal entity from its owners. It can own assets, enter contracts, employ people, and is responsible for its own debts. As a director and shareholder, you're separate from the company in the eyes of the law — which has significant practical and financial implications.
Key benefits of a limited company
1. Tax efficiency
Corporation tax on limited company profits is currently 19–25% (depending on profit level) — compared to income tax rates of up to 45% for higher earners as a sole trader. By drawing a combination of salary and dividends, directors can often take home significantly more of what they earn. This is one of the primary reasons people incorporate.
2. Limited liability
As a sole trader, your personal assets (your home, savings, car) are at risk if your business runs into financial difficulty. As a limited company director, your personal liability is limited to the share capital you've invested. This doesn't protect against personal guarantees or directorial wrongdoing, but for most business owners it's a meaningful layer of protection.
3. Professional credibility
Many larger clients and public sector organisations prefer — or even require — contractors and suppliers to be operating through a limited company. A Ltd company can also make you appear more established and professional to potential clients.
4. Retained profits
As a sole trader, you're taxed on all your profits in the year they arise — even if you don't withdraw them. Through a limited company, you can retain profits in the business and draw them in future years when it's most tax-efficient to do so.
5. Employment allowance and pension contributions
Limited companies can claim the Employment Allowance to reduce National Insurance bills, and make tax-efficient pension contributions directly from the company as a business expense.
When does incorporation make sense?
The tax advantages of a limited company become most pronounced when your profits exceed approximately £30,000–£35,000 per year. Below that level, the additional complexity and compliance costs (annual accounts, confirmation statements, corporation tax returns) may not justify the switch. Above that level, the savings typically far outweigh the costs.
The downsides
A limited company comes with additional responsibilities: annual accounts filed at Companies House, a corporation tax return each year, director's duties, and more complex record-keeping. These are manageable — especially with a good accountant — but they're worth being aware of.
Thinking about incorporating? Book a free consultation and we'll walk you through the numbers for your specific situation.