Freelancing as a limited company: when is it right?

Limited company freelancer

There are a number of factors that cause people to shift to limited company structures. It’s important to consider all of them before taking the plunge.

  1. Do you need to separate the business from your personal affairs? A company is legally separate from you, so it’s a good way of managing risk.

    If there is a likelihood of your business failing in a very expensive way, you would want to put the business into the company so that you protect your house, savings and other personal assets.  

    Most freelancers aren’t running huge risks, but it’s one of the most important considerations in my view.

  2. Do you have to be set up as a Limited Company structure in order to get work? Some clients will not give money to sole traders/partnerships.

  3. Are you significantly better off as a company structure? There is a myth that it’s always better, but since the introduction of dividend taxes this is even less likely.

    Accountants I have spoken to say that the cut off is about 50-60K profit a year as a sole trader. If you’re above that you might be financially better off, as long as you get the balance right between company profits, PAYE taxes (income tax/NI) and dividend taxes (which can be punishing).  

  4. Are you aware of extra admin and extra costs. A company structure requires two tax returns – one for the company and one for you. You also have to file an annual confirmation statement.

    Bear in mind that an accountant will be more expensive even if you do some of these extras yourself.

I’ll steer clear of advising you which way to go, as I’m not an accountant and not a financial advisor. One thing I would suggest is that you are very clear why your accountant is suggesting this way forward.

You are making an assumption that it’s about tax efficiency. But your accountant must run the figures for you before you make an informed decision. You could be worse off. And make sure you know how their fee will increase.

Doing the donkey-work yourself

Finally, ask your accountant how they are preparing for HMRC’s Making Tax Digital programme, and which software they would recommend.

Making Tax Digital for sole traders is likely to be coming in Apri 2023. Limited companies will probably have to use MTD-compliant software shortly after that.

Even before then you should be able to do a lot of the bookkeeping as you go along.

Everything you do yourself should make your accountant’s fee cheaper, as they’ll have to dedicate less time to you.

Posted on 15 May 2020

What do you think?



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