Certificate Of Incorporation
1st Facility Management Ltd T/A First Facility Management (FFM)
After trading for three years FFM has become a limited company there are many reasons for this. FFM has prepared a small guide for people either just setting up in business or the owners of current businesses looking at stepping up from say a sole trader or partnership to a limited company.
FFM found one of the most common questions asked by the self-employed is whether to trade as an individual or as a company.
This decision has implications for FFM:-
– Tax liabilities.
– Legal and financial responsibilities.
– The amount of paperwork you will need to complete and how your peers view you.
It’s not a straightforward answer, because different legal structures suit different situations. It’s always worth speaking to your professional advisers such as your accountant. This decision does not have to be made at the outset, before you begin trading.
The structure you choose can depend on your own personal situation and future plans, therefore the decision you make will have an impact on how you pay the relevant tax to HMRC.
The appropriate structure or status will depend on a number of factors, these include the tax implications, the legal entity, ownership and liability.
Picking the wrong structure could see you paying more tax than is necessary. It is important to identify early on if the wrong structure is being used so a plan can be put in place to change to something more suitable.
When you are choosing the best option for you, there are a number of things to consider:-
– What sort of work will you be undertaking and equally importantly.
– What sort of clients will you be looking to engage with?
Most freelances choose to operate as a limited company simply because so many potential clients and agencies will only do business with individuals who operate in this way.
The downsides of the limited company are:-
– More rules and regulations.
– Accountancy fees tend to be higher and the penalties for getting your paperwork wrong are greater.
– Plus you will have to pay corporation tax.
– You can’t just withdraw money from the business without formally recording it as a salary, dividend or loan.
However there are benefits to operating under a limited company:-
– First and foremost, it grants access to the many clients who will not engage with sole traders.
– There is also the fact that your personal assets are protected against company debts.
– Personal property, such as your house, has a level of protection.
When deciding which option is right for you – trading as a company or as an individual – look at the type of clients you will be pitching to for work. They may well require you to be a limited company in order to engage with you, it would be unwise not to comply.
You also need to look at the environments you are likely to be working in and the risks involved.
For freelances looking for a simpler approach, working as a sole trader is a relatively uncomplicated choice that will allow you to focus fully on the important things – getting work and then delivering it to a high standard.”
So how does each one work?
– Going freelance essentially means that you are setting yourself up as a business. To do this, you have to create a legal structure formally and let the authorities know how you are operating.
To operate as a sole trader:-
– Simply contact HMRC and register for self assessment. This can be done online and should be done by 5 October, following the end of the tax year that you are sending a return for.
– You will need to enter your earnings every year, and the tax will be calculated for you.
To form a limited company:-
– It’s a little more complicated. You will need to register with Companies House and receive a certificate of incorporation this will confirm your company legally exists and shows the company number and date of formation.
– There are some restrictions on company names, and who can act as a director and as company secretary. The Gov.uk website explains the process more fully.
Whichever path you choose, it’s important to understand that your decision isn’t final. It is always possible to change at a later date.