Tag Archives: Limited Companies

5 ways to set up your small business for success.



A lady on a business phone call in her small business workshop

Starting a small business can be an exciting and rewarding endeavour, but it also requires careful planning and a strong strategy to achieve success. As a small business owner, it’s important to set your business up for success from the very beginning. 

Here are a few tips to help you get started:

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Sole trader vs limited company: Which is the best option for you?


How you decide to structure your new business will have a significant impact on how your venture operates and how much tax you’ll need to pay – not to mention how it is perceived by potential clients.

There are three main options: becoming a sole trader, entering a limited liability partnership, or registering a limited company.

Here, we’re going to focus on the pros and cons of the two most popular choices – going it alone as a self-employed entrepreneur i.e. as a sole trader and giving your organisation a separate legal identity to your own as a limited company. 

The advantages and disadvantages of becoming a sole trader

As the name suggests, becoming a sole trader means you’ll work for yourself, by yourself. You won’t have the support of a board of directors – but on the other hand, you’ll be able to run things your way, without having to get other shareholders on board with your decisions. You won’t need to pay to register with Companies House, and all you’ll need to do from a financial perspective is keep an accurate record of your income/expenses and submit your self-assessment tax return every year.

The sole trader approach is often the best fit for freelance professionals, such as photographers, copywriters, designers, journalists, editors, translators, and professional consultants in any field.


  • Simple management structure
  • Less paperwork
  • Straightforward tax return process
  • Expenses can be tax-deductible
  • Can still employ staff


  • Profits taxed as income, exposing you to the higher rate tax band faster
  • Less tax-efficient overall
  • Not legally separated from your business
  • Liable to clear any debts with your personal assets

The advantages and disadvantages of setting up a limited company instead

Creating a limited company is the easiest way to minimise risk. In our eyes, this is the single most important reason why it’s a better long-term option compared to setting up as a sole trader.

A unique benefit of registering a limited company vs becoming a sole trader is that, as the name suggests, doing so will limit your liability for any debts incurred by your business. This means that if you ever run into financial trouble, you won’t need to use your own hard-earned assets – such as your property – to settle what you owe. Any legal action will also be brought to the company itself, not you as an individual.

Tax savings can also be made when setting up a limited company (although you will need to check with your accountant to find out what this means for you). Limited companies pay corporation tax on net profits (currently 19%), while sole traders will need to pay between 20% and 45% income tax on their gains plus National Insurance contributions.

The limited company route is often ideal for business owners who want to grow quickly; who want to be perceived as more trustworthy and secure by larger clients with more stringent tender processes; or who want to join forces with other entrepreneurs in an environment that’s more structured and protected than limited liability partnership arrangements.


  • More secure setup
  • Appeals to banks and funding providers
  • Appeals to larger firms
  • Pay less tax on profits
  • Total income taken via PAYE and dividends
  • Can set up Directors’ Loans
  • Can set up with only one ‘employee’ (you)
  • Can employ staff


  • More administrative responsibilities
  • Must register with Companies House
  • Must attend yearly directors’ meetings
  • Must submit corporation tax return every year, as well as personal self-assessment
  • Can be difficult to manage the opinions and expectations of multiple directors and shareholders

Companies MadeSimple makes light work of forming a limited company. We can assist entrepreneurs at every stage of their journey, from those who are setting up a business for the first time to sole traders and contractors who wish to switch to a limited company structure after many years of trading. Contact us for more information on our company formation services or view our registration packages here.


How to pay yourself from a Limited Company


You are entitled to various benefits and perks as a limited company director. One of the most valuable perks is being in charge of your salary. This means you can set your salary within certain limits and take advantage of other benefits. However, knowing how to pay yourself from a limited company can be confusing if you’re unfamiliar with the process.

This article will explain how to pay yourself from a limited company. We’ll review the two major options available and help you decide which is best for you.

How to pay yourself through PAYE

PAYE, referred to as Real Time Information (RTI), is the system that most employees are familiar with. PAYE generally works by you, as director, paying yourself a salary through the payroll system. This salary is taxed at the appropriate rate, and National Insurance contributions (NICs) are deducted.

Advantages of the PAYE scheme:

  • You will have a regular income taxed at the correct rate.
  • You will build up a state pension record.
  • You can take advantage of other benefits such as company pension contributions.
  • You will have no extra personal tax bill or tax return to complete.
  • You will not have to worry about late payment penalties.

Disadvantages of the PAYE scheme:

  • The PAYE scheme is not as tax efficient as other payment methods, such as dividends.
  • Your ability to extract cash from the company may be limited by how much you can afford
  • If you are a higher-rate taxpayer, you will not be able to use your allowance fully.
  • PAYE is not flexible since you are required to report on or before you pay yourself.

PAYE is a popular option because it is relatively straightforward. However, there are a few things to be aware of before you choose this method. For example, you will need to ensure that you correctly report your salary and pay the right amount of tax.

How to pay yourself through dividends

As a limited company director, you also have the option to pay yourself through dividends. Dividends are a distribution of company profits and can be an efficient way to take money out of your company, particularly if you are a higher-rate taxpayer.

This option assumes that you also own shares in your company and have sufficient profits available to make the dividend payment. If you have a separate regular job paying you through PAYE, taking advantage of dividends is generally the most popular way to pay yourself as a director. That’s because you don’t need to pay National Insurance contributions (NICs) on dividends, and the tax rate is usually lower than your marginal income tax rate.

Advantages of the dividend scheme:

  • Dividends are a more tax-efficient way to take money from your company.
  • You can be flexible regarding when you take dividends.
  • It’s cheaper than salary, especially if you are a higher-rate taxpayer.

Disadvantages of the dividend scheme:

  • You need to have sufficient company profits available to make the payment.
  • You may need specific paperwork to prove to HMRC that the dividends are fair.
  • You need to be a shareholder to take advantage of this scheme.

It’s possible to combine the two methods

You don’t always need to choose between PAYE and dividends – you can use a combination of the two to suit your needs. For example, you might choose to take a small salary through PAYE and top it up with dividends. This can be a good way to reduce your tax bill and still take advantage of the benefits of PAYE, such as building up a state pension.

Talk to an accountant or financial advisor if you’re unsure about the best way to pay yourself. They will be able to help you choose the most tax-efficient method for your circumstances.

At Companies Made Simple, we can help with all aspects of starting and running your limited company, including accountancy consultation and VAT registration assistance. Get in touch with our team today to discover the right limited company solution for you.