Is Your Accountant Claiming Expenses Specific to You?

When starting or growing a business in Liverpool, one of the most important decisions you’ll face is choosing the right business structure. Many entrepreneurs wonder whether to operate as a sole trader or set up a limited company. Understanding the difference can help you make smarter financial and legal choices for your Liverpool business.

What Is a Limited Company?

A limited company is a separate legal entity from its owners. This means that the company itself can enter contracts, hold assets, incur liabilities, and pay taxes independently from the individuals who own or run it.

For example, if you’re Josh Thomas, you’re the individual, but Josh Thomas Limited is the company – a distinct entity responsible for its own finances.

How Does a Limited Company Work?

Let’s say your Liverpool business has £100,000 in turnover and £50,000 in expenses. That leaves a profit of £50,000.

The company pays corporation tax on that profit, currently set at 19% in the UK.

After tax, the remaining money becomes retained earnings – funds that can stay in the company or be paid out to shareholders as dividends.

If you’re the sole shareholder, you can receive dividends, which are a way of sharing the company’s profits with its owners.

This separation protects your personal assets – a concept called limited liability – meaning your personal finances are shielded from business debts and liabilities.

Why Liverpool Businesses Choose Limited Companies

Tax efficiency: Paying corporation tax on profits and drawing income through dividends can reduce your overall tax bill compared to sole traders.

Professional credibility: Many clients and suppliers prefer dealing with limited companies, perceiving them as more established.

Growth potential: Limited companies can raise capital by selling shares, which can help businesses scale faster.

What About Sole Traders?

Operating as a sole trader is simpler – you and your business are legally the same. This means your personal and business finances are intertwined. You pay income tax on all your profits and are personally liable for any debts.

For small Liverpool businesses starting out, sole trader status might be suitable due to its simplicity, but as your business grows, a limited company could offer better protection and tax benefits.

Things Liverpool Businesses Should Consider

While limited companies offer advantages, they also come with more administrative duties, such as filing annual accounts with Companies House and adhering to stricter reporting standards. Hiring a local Liverpool accountant can help manage these responsibilities and optimise your tax position.

Conclusion

Choosing the right business structure is vital for your Liverpool business’s success. Limited companies provide legal protection and potential tax advantages but require more compliance. Sole trader status offers simplicity but less protection.

If you’re unsure which structure suits your Liverpool business best, speak with an experienced accountant who understands the local market and can guide you through the options.