Limited Company and Being Self-Employed – What’s The Difference?

By April 21, 2021 April 27th, 2021 Insights

Starting a business is an exciting prospect but you have more than likely heard many different pieces of advice or read many online articles that have left you feeling confused. One of the considerations you might be making is whether you should be a Limited Company or Self-Employed. Whatever you choose, there are some things to learn.

When Will You Need to Register?

If you opt for a Limited Company, then you will need to create the company before you do anything else. This is because a Limited is a separate legal entity, and that means that you cannot trade through something that doesn’t exist.

If you choose to go self-employed then you will have until the 5th October during the following tax year to inform HMRC that you are trading. So, if you started trading in July of 2021, you have until 5th October to tell HMRC. 

Expenses – What Can I Claim?

Regardless of whether you are trading through a limited company or are self-employed, you can claim for business expenses in the same way, as business expenses are business expenses.

However, you will notice differences when it comes to purchases that have dual personal and business use. These could be things such as mobile phone costs, use of the home or motor expenses. 

The difference becomes apparent because if you are self-employed then you have to follow the rules of a business owner. As the Director of a Limited Company, you fall under the rules of an employee.

So, if you consider motor expenses as someone who is self-employed. You have the option to either use a percentage of your motor costs or claim 45p per mile, you’ll also be able to include your car as an asset if you want to. 

When you trade through a Limited Company, you will only be able to claim 45p per mile and if you bring your vehicle into the company then it will have to be treated as a company car, which means you will have a P11d and will have to pay national insurance on it. This is because HMRC sees the personal use of a company car as an additional salary.

When it Comes to Accountancy, Who Do I Deal With?

When you are self-employed, it means that you only deal with HMRC and the relationship is more than likely going to be mainly based around tax. This relationship will still remain if you trade through a Limited company, however, you will also be required to work with Companies House.

Companies House will show interest in whether your Limited Company is trading and whether it can pay its debts, which means it is solvent. What’s more, it will also want to know who the Directors are and who the shareholders are.

Whether you are self-employed or operating through a Limited Company, handling all of this can seem challenging and time-consuming and that’s why you should consider using professional help to keep you on track and on the right side of the law.

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